Income Tax Appellate Tribunal - Hyderabad
K.C.P. Ltd. vs Income-Tax Officer on 29 June, 1990
Equivalent citations: [1990]34ITD50(HYD)
ORDER
T.N.C. Rangarajan, Judicial Member
1. These appeals relate to the disallowance of certain deductions claimed by the assessee in computing the income of the assessment year 1982-83 for which the previous year ended on 30-6-1981.
2. The assessee is a Public Limited Company engaged in the manufacture of sugar, cement, machinery, etc. The first point in dispute relates to the claim of the assessee for deduction of Rs. 21,47,801 which was a provision made in the accounts for payment of liquidated damages in respect of contracts of the assessee to supply machinery manufactured by the assessee. The assessee's claim was that time was the essence of the contract for the supply of the machinery and a specific clause has been incorporated in the agreements that in case of delay, liquidated damages at a percentage of the total value of the contract had to be paid and, therefore, since admittedly there was a breach of contract by reason of the delay, the assessee had computed the damages payable for the period of the delay falling within the previous year and had made a provision in the accounts. The Income-tax Officer, was, however, of the view that in respect of one of the contracts, the delivery date was beyond the previous year and in the case of the other contract such damages occur only when the delivery was actually completed which was also beyond the previous year and, therefore, the deduction claimed could not be allowed. He also noted that for the earlier assessment year 1978-79, the deduction had been allowed only after the delivery of the machinery. He was of the further opinion that the calculation of the damages also depended upon negotiation and hence the amount claimed could not be regarded as an accrued liability.
3. On appeal, the Commissioner (A) was of opinion that even though the delay occurred during the year of account, the purchaser could not enforce the liability and hence the claim for deduction could not be allowed until the contract was completed. The Commissioner (A) purported to follow the decision of the Tribunal in the assessee's own case for the assessment year 1978-79 in this regard.
4. In the further appeal before us, it was contended on behalf of the assessee that in terms of the agreements liability to pay damages arose no sooner than there was a breach and the assessee had only provided for the liquidated damages pertaining to the period of delay falling within the previous year in order to arrive at the true income of the assessee particularly when the assessee was accounting for receipts attributable to the previous year. It was submitted that this was the consistent method of accounting followed by the assessee and there was no reason to depart from it. On the other hand, it was contended on behalf of the Revenue that there could not be a unilateral liability for damages and that such a liability was contingent on the purchaser making a claim therefor which could arise only after the completion of the contract. It was further submitted that for the earlier year 1978-79 the assessee had made a claim only on the basis of the completed contract and, therefore, there was no reason to take a different view for the present assessment year.
5. In order to appreciate the rival submissions, we may set out the terms of the agreement and the accounting procedure followed by the assessee. The assessee had entered into a contract with M/s MI Cranes Ltd., for the supply of 2 Nos. Bucket Wheel Excavators. The agreement dated 28-3-1980 (Annexure A) contains technical requirements of the contract which specifically stated in Clause (viii) that the delivery period is the essence of the contract. Annexure 'B' contains commercial terms, which provided that the assessee will be paid 10% of the value of the contract within one week of the acceptance of the contract, another 10% within 4 months and further 20% after 6 months subject to furnishing of bank guarantee. 60% of the pro rata despatch value was to be paid within 15 days of the despatch of the machinery. Clause 5 relating to late delivery was as follows :
Late Delivery :
If the delivery period as mentioned in the progress chart is exceeded, you will be entitled to bear the liquidated damages as follows :
1/2% per fortnight or pro-rata for part of the work on the total value of the contract including escalation, subject to maximum of 5% of the final total contract price.
In this respect you will give us Bank Guarantee immediately of 5% of the value of the contract valid till last consignment is sent from your works.
There was also a force majeure condition in clause 11 which provided for extension of time if the assessee makes a claim in writing. An arbitration clause was also provided in the agreement. Even though the agreement stated that the delivery schedules are to be once again looked into and the final confirmation will be sent later, it is now not in dispute that according to the delivery schedule, several machinery parts were to be despatched from 15-12-1980 onwards in several instalments. However, the first crane was to be delivered by April, 1981 and the second by October, 1981 and the total value of the order was Rs. 1,42,82,346. The first machine was actually despatched only in October, 1982 and the second machine in October, 1983. It maybe noted that immediately after the contract was entered into, the assessee had according to the terms of the contract extracted above also furnished bank guarantee for 5% of the value of the contract against the liquidated damages payable for late delivery. The accounting procedure adopted by the assessee was to bring into account as receipts the value of the bills raised on the purchaser even though such bills provided for retention of 10% of the value thereof for warranty purposes. With regard to the liability to pay damages for late delivery, the assessee had credited the purchaser with the amount calculated at V2% per fortnight of the delay falling within the previous year. Thus the assessee had credited the purchaser with liquidated damages due for the delay falling within this year in respect of machinery which was delivered in the next year and in respect of which bills were raised only in the next year. The balance of the liquidated damages for the delay falling in the next year was accounted for in the next year. According to the assessee, when the payment was actually made, the accounts were adjusted with reference to any remission or waiver that the assessee may get in respect of the damages payable for late delivery.
6. From the above statement of facts, it would be apparent that the method of accounting of the assessee is to apportion the liquidated demages payable for late delivery for the period falling within the previous year and for the period extended beyond the previous year on the basis that the liability accrued on the date when the breach was committed, namely, the date on which the delivery was due but was not given, and claimed the same as deduction in computing the income on the ground that the assessee having adopted mercantile system of accounting, the liability to pay the liquidated damages for the delays occurred in the year had to be provided for as a charge on the profits and had to be allowed as a deduction. On the other hand, the Income-tax Officer has granted deduction in the next year for the whole amount calculated for the entire period of delay on the ground that under the terms of the contract and accounting practice adopted by the assessee in the past, which met with the approval of the higher appellate authority, the liability to pay damages arose only when the delivery was made and the bill was raised. Thus, the question is whether the accounting practice adopted by the assessee is in conformity with the legal position with reference to the accrual of liability for payment of damages.
7. In this context, we may refer to the situation that arose for the earlier assessment year 1978-79, which corresponds to the previous year ended 30-6-1977. In that year, from gross receipts relating to the supply of machinery by the assessee to M/s Hindustan Shipyard Ltd. and M/s Siemens India Ltd. the assessee had made a provision for liquidated damages of Rs. 2,58,630 and claimed deduction of that amount. They claimed that liquidated damages was referred for arbitration and subsequently, in the year ended 30-6-1979, there was an award reducing the liability to Rs. 1,03,647 and the assessee added back the difference of Rs. 1,54,983 to the profit and loss account of the previous year relevant to the assessment year 1980-81. In making the assessment for the assessment year 1978-79, the Income-tax Officer disallowed the deduction on the ground that the claim for damages was subject to dispute but on appeal, the Commissioner (A) granted the deduction of the amount of Rs. 1,03,647 being the finally determined amount of damages. Both the assessee and the Revenue appealed and the Appellate Tribunal held that the liability arose when there was a breach which occurred on 15-3-1977 when the delivery was due and since the conditions in the contract provided for quantification, the assessee was entitled to make provision for the amount as provided in the agreement and if there were any reduction subsequently in the liability, the difference could be brought to tax under Section 41(1) in the subsequent year. It is pointed out on behalf of the Revenue that the contract in that case was dated 20th October, 1972 and the delivery date was 21-2-1977 and even though the contract was stretched for several accounting years, the assessee had not provided for the apportionment of the damages for the delay for the different years and, therefore, the assessee was not following a consistent method of accounting with reference to the claim for liquidated damages. But, we find that this is not reflected in the assessment order for that year. The date given in that order shows that purchase orders were given in respect of three contracts in 1975 and 1976 and in respect of deliveries due in the previous year ended 30th June, 1977 the assessee had provided for liquidated damages in the accounts even though the delivery was actually made beyond the previous year. In one case the delivery date also fell within the previous year. But the fact is that the assessee has provided for liquidated damages with reference to the dates on which the deliveries were due but not with reference to dates on which the deliveries were actually made and the bills presented for payment. We cannot, therefore, accept the contention of the Revenue that the assessee had not been following a consistent method of accounting with respect to making provisions for liquidated damages arising from delay in the delivery of goods. The above enumeration of events shows that neither then nor thereafter the assessee had ceased to provide for the liquidated damages for breach of contract arising out of delays in deliveries.
8. As we have noted above, it is not in dispute that in terms of the agreements of the assessee for the supply of goods, time was the essence of the contract and any delay in the delivery of the goods would result in the liability to pay damages. That the parties meant it seriously is proved by the fact of provision for bank guarantee up to the maximum value of liquidated damages. It is also now settled that even contingent liabilities, if properly valued on scientific basis, can be taken into account as trading expenses if they are sufficiently certain and capable of valuation and profits cannot be properly estimated without taking them into account [See Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 at 64 (SC)].But, this is not to accept that the provision made for liquidated damages is a contingent liability. The stipulation in the contract clearly shows that the liability for liquidated damages is certain, accrued and is not to depend upon the happening of any event other than delay in deliveries. The only point in dispute in the present case is whether the liability for payment of damages should be taken at the point of time when the breach occurred or at the point of time when the assessee delivered the goods and raised the bill. The distance between these two points of time would make no difference if they happen to be in the same previous year and would make no difference even if they are in two different previous years, as in the present case of a company, the rate of tax is the same. The Revenue insists on the liability being accounted for only at the point of delivery on the ground that there is a likelihood of the claim being made for damages by the other party only at that point of time, and on the date of breach there was only a unilateral provision for possible claim for damages. This, however, does not seem to be the agreement between the parties, nor even under contemplation. On the other hand, the clause in the agreement extracted above does clearly provide for the payment of liquidated damages no sooner than the delay takes place and as a guarantee for payment of liquidated damages bank guarantee was to be given for the full amount of liquidated damages. There may be a possibility for the deduction of liquidated damages on negotiation. But that is not to say that the liability to pay liquidated damages did not accrue. Nor does it stand to reason because the delay in the delivery of the goods under the terms of the agreements in question constituted breach, it does not discharge the contract as such, because admittedly the contracts have not been avoided by the other side at all. The reason is that they were continuing contracts for manufacturing of articles to the specification of the purchaser and time was stipulated as the essence of the contract ; nonetheless it would have served no purpose if the purchaser had cancelled the contracts when the work on the manufacture of the machinery had progressed perhaps a very large extent and payments were made in the mean time as per the terms of contract. That was the reason why penalties have been provided in the agreement itself depending on the period of delay which is intended to act as a deterrent against delays in deliveries and this is to avoid future litigation as to the quantum of damages. Under Section 74 of the Indian Contract Act, even if there is a stipulation by way of penalty, the party complaining is entitled to receive only reasonable compensation not exceeding the amount named. Section 74 reads as follows:-
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breachis entitled, whether or notactual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
This shows that the claim for damages arises at the point of breach but the quantification of damages is subject to negotiation, though the ceiling of the amount is stipulated in the contract. As far as the assessee is concerned, the liability to pay damages arose at the point of time when the breach occurred i.e., when it failed to deliver on the due date, and at that point of time the liability accrued which as a prudent trader it could quantify and take into account by means of a provision. Since the agreements have already stipulated the amount, there was nothing wrong in adopting the same formula for computing the amount. All that has happened is since the delay stretched beyond the previous year, the assessee has apportioned the damages and has taken into account only that amount which is relatable to the delay that has occurred in the previous year in question. This is perhaps proper and rational and we can see nothing wrong in this method of accounting either in law or as a matter of method of accounting which has been consistently followed by the assessee, to which no objection was taken by the regular audit as well as by the tax audit. The department does not either dispute the accrual of liability to pay liquidated damages, but in fact it actually allowed the whole amount in the year in which deliveries were given. As we have pointed out above, the contract does not provide for such a situation, nor does the liability to pay the liquidated damages arise on delivery. Claiming the liquidated damages as and when delays take place is an easier method, and should there be any difficulty in calculations or quantification, that may render the amount provided as damages incorrect but that does not postpone the accrual of liability. As we have pointed out, what was in dispute was the point of accrual of liability under the terms of the contract, but not either quantification or the fact that the liability to pay liquidated damages as and when delays had taken place.
9. Another objection taken by the Revenue was that in the agreements, there was a clause for escalation of prices with reference to wages which said that the purchaser agreed to escalation in the wages according to a formula stated in the agreements. Since the maximum damages payable was 5 per cent of the final total contract price, the assessee has taken into account this escalation in arriving at the amount of liquidated damages but the stand of the Revenue is that the assessee has not taken into account the estimated escalation in the value of contract with regard to its receipts which are accounted for only on the basis of bills raised. But, in the present case, the right to receive the extra price arises only when the delivery is made. If this is so, then in the circumstances there was no accrued right to receive the extra price when admittedly the goods had not been delivered in the previous year and the assessee has actually accounted for such escalation in the bills raised when the goods were actually delivered. The only question that remains is whether when the assessee had not yet made a claim for escalation of prices, could it take into account such anticipated escalation in prices while working out the liquidated damages. We think the assessee is not entitled to include the anticipated escalation in prices for calculating liquidated damages, as they are first uncertain, vague as they are liable to arbitration, and secondly, no one would be entitled to lay a claim on a thing to receive which he had not acquired the right. As we have seen from the clause in the agreements, the damages, though are with reference to the total contract price which obviously should include escalation, nevertheless, the provision for damages being an estimate, it should be in conformity with the rights accrued between the parties under the agreement. We may also add that the view we are now taking is not in conflict with the view taken by the Tribunal in the earlier years and is broadly in agreement with it In these circumstances, we accept the claim of the assessee that the provision for liquidated damages must be allowed as a deduction but only upon verfication of quantification as no one had gone into it, and if any waiver or rebate is allowed by the purchaser subsequently, the corresponding amount has to be brought to tax under Section 41(1) in the assessment for the concerned assessment year. We direct accordingly.
10. The next item in dispute is with reference to the claim for weighted deduction under Section 35C of the Income-tax Act, 1961. The assessee claimed this deduction in respect of three items:-
i. Contributions to Cane Development Council Fund ... Rs. 2,77,515.
ii. Cash subsidy paid to cane growers for purchase of seeds .. .Rs. 1,87,798.
iii. Expenses for repaid to equipment used in agricultural operations... Rs. 1,56,646.
With regard to the first item, the Commissioner (A) followed the decision of the Tribunal in the assessee's own case for the assessment year 1972-73 dated July, 1984 in ITA No. 1473 (Hyd.) of 1983 and directed the Income-tax Officer to allow deduction. The revenue is in appeal to contend that the order of the Tribunal has not become final and, therefore, this year the assessee is not entitled to deduction in respect of this expenditure. But, it is not in dispute that the facts are identical and the decision of the Tribunal applies to facts of this year as well. Hence, we confirm the order of the Commissioner (A) on this point.
11. With reference to the second item, it is explained that the agriculturists were persuaded to purchase superior variety of seeds and the assessee had given the difference in the price between the ordinary variety of seeds and the superior variety of seeds as cash subsidy on production of purchase bills. The authorities below were of the opinion that the provisions of Section 35C allow deduction only in respect of expenditure incurred by the assessee and the cash payment could not be regarded as an expenditure eligible for deduction. The contention of the assessee in the further appeal is that though the amount was paid to the agriculturists, it was in fact a reimbursement of the expenditure incurred for purchase of seeds and, therefore, it was eligible for deduction. The Revenue relied on the wording of the section to resist this claim. Section 35C is as under:-
35C(1)(a) Where any company or a co-operative society is engaged in the manufacture or processing of any article or thing which is made from, or used in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or dairy or poultry farming, and has incurred, after the 29th day of February, 1968, whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority, any expenditure in the provision of any goods, services or facilities specified in Clause (b) to a person (not being a person referred to in Clause (b) of Sub-section (2) of Section 40A) who is cultivator, grower or producer of such product in India, the company or co-operative society shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-fifth times the amount of such expenditure incurred during the previous year.
(b) The goods, services or facilities referred to in Clause (a) are the following:-
(i) fertilisers, seeds. concentrates for cattle and poultry feed, tools or implements, for use by such cultivators, grower or producer;
(ii) dissemination of information on, or demonstration of, techniques or method of agriculture, animal husbandry or dairy or poultry fanning, or advice on such techniques or methods;
(iii) such other goods, services or facilities as may be prescribed.
Explanation: In computing the expenditure with reference to which deduction under this section is to be allowed, the amount, if any, received by the company or cooperative society in consideration of or as compensation for, such goods, services or facilities shall be deducted.
(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure of the nature specified in Sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.
The expression "incurred ... any expenditure in the provision of any goods ... specified in Clause (b)" used in Section 35C does not necessarily mean that the assessee itself must have directly purchased the goods and supplied the same to the agriculturists. There are at least two known methods of providing goods to the agriculturists. One is for the assessee to purchase directly from the market the specified goods and supply the same to the agriculturists. In this mode, it would be necessary for the assessee to transport the goods from the market to its store-house, store them for some period at least, before the same are distributed among the agriculturists which again may entail transportation charges. Another mode of providing specified goods would be by an arrangement whereby the agriculturists themselves are directed to purchase the specified goods at convenient locations and for the assessee to reimburse the cost of such purchases. The latter method would be more convenient from the point of view of the agriculturists because they would be able to get their supplies according to their requirements in the right place, in the right time and in right quantities, and from the point of view of the assessee it would be economical besides being convenient because double transportation cost and storage losses of the specified goods are either avoided or kept to the minimum. The assessee has chosen the latter method and even here it was not meeting the entire cost of goods but only chose to cover the difference between the cost of low quality seeds and the cost of high-yielding seeds. In other words, from the method adopted by the assessee, it could be safely said that the assessee was providing high quality seeds though the expenditure on the provision of such seeds is described as "cash subsidy" in its accounts. The reimbursement of expenditure incurred by the agriculturists in the purchase of specified goods is nonetheless "expenditure" incurred by the assessee in the provision of specified goods. All that the section requires is that the assessee must have incurred the expenditure in the provision of specified goods and there is no warrant to import into the section the meaning as canvassed by the Revenue that the expenditure must be incurred on the purchase of goods by the assessee itself before the same are provided to the agriculturists. Different modes of incurring of expenditure can be adopted by an assessee depending upon its convenience and economies. Since the assessee was not paying the full price of the goods but was only paying the difference in the prices between the ordinary seed and the superior seed, the only practicable method of incurring that expenditure was by way of paying the difference in prices to the agriculturists on production of the bill for the purchase of the superior seed. We are convinced that such payment fell within the terms of Section 35C and was eligible for the weighted deduction. We direct the Income-tax Officer to grant this deduction in respect of this expenditure also.
12. In respect of the third item of expenditure, the Income-tax Officer was of the opinion that only the supply of articles would be eligible for the deduction and not the expenditure incurred for the repair of the articles. The Commissioner (A) was, however, of the opinion that when a machinery or equipment is provided, it was an intrinsic part of the provision of such machinery to see that such equipment was in good repair and, therefore, expenditure for repairing it would also be eligible for deduction. We are not persuaded to differ from the view of the Commissioner (A) because it stands to reason. When an expenditure incurred for the provision of tools and implements is eligible for deduction, a fortiori the expenditure incurred to keep them in working condition would and should also fall within the terms of Section 35C. We have extracted the provisions of Section 35C in the preceding paragraph. The propelling for cebehind the enactment of Section 35C is agricultural development by enabling the cultivator, grower or producer to obtain goods, services or facilities such as fertilisers, seeds, pesticides, etc., exposure to modern methods of agriculture, animal husbandry or dairy or poultry farming or advice on such techniques or methods with a view to achieve higher productivity in agriculture, animal husbandry or dairy or poultry farming. The goods specified in Section 35C are meant for 'use' by the cultivator, grower or producer. The emphasis is on the 'use' by such person. In other words, the goods, services or facilities must be either used by such person or be capable of being used by such person. Mere provision of tools or implements without attendant repair facilities would make such provision devoid of its purpose. When a tool or equipment has fallen into disuse, any expenditure incurred for reconditioning it or making it serviceable would be tantamount to the provision of tools and implements for use by the cultivator. The expression 'provision' is not a term of art. It has to be understood in the sense in which it is used iii common parlance. In this view of the matter, we uphold the order of the Commissioner (A).
13. The next item in dispute is with reference to the claim of weighted deduction in respect of the contribution paid by the assessee to the Chairman, Zilla Parishad in a sum of Rs. 5,00,000 and to the Zilla Parishad for the formation of pucca road in a sum of Rs. 1,50,000. These contributions were made in response to an appeal by the Collector dated 18-2-1981 stating that the members of the villages on the left bank of Krishna River which did not have direct access to Vijayawada-Bandar Road would be serviced if a double lane road on the left bank is laid, that the proposed road would cover a distance of 31 kms. and could be used by the trucks of the assessee's factory drawing sugarcane from 15 villages which could reach factory site by the new road, that the acreage may also be increased and it would also help the assessee to receive fresher cane. The assessee accordingly made the contribution. The Income-tax Officer was of the view that the expenditure was a capital expenditure and could not be allowed as deduction in computing the profits and would also be ineligible for weighted deduction under Section 35C because the body concerned was not an approved body under that section. On appeal, the Commissioner (A) agreed with the Income-tax Officer that the formation of the road did not afford any exclusive benefit to the assessee and, therefore, it was not an expenditure laid out for the purposes of business.
14. In the further appeal, the contention of the assessee is that the expenditure was laid out for the purposes of business and reliance was placed on the decision of the Supreme Court in L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293/4 Taxman 5 as well as that of the Karnataka High Court in Hindustan Machine Tools Ltd. (No. 3) v. CIT [1989] 175 ITR 220. On the other hand, the revenue supported the orders of the authorities below and relied on the decision of the Supreme Court in Travancore-Cochin Chemicals Ltd. v. C/7'[1977] 106 ITR 900.
15. On a consideration of the rival submissions, we find that the decision of the Supreme Court in L.H. Sugar Factory & Oil Mills (P.) Ltd.'s case (supra) relied on by the assessee directly applies to the facts of the case. In that case, the assessee contributed a sum of Rs. 50,000 to the State of Uttar Pradesh towards meeting cost of construction of roads in the area around its factory under a sugarcane development scheme promoted by the Uttar Pradesh Government as part of the Second Five Year Plan. The assessee sought to claim this amount as deductible expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The claim was disallowed as capital expenditure. The assessee did not succeed in its appeals. The reference to the High Court also went in favour of the revenue. The matter eventually came up before the Supreme Court. The Supreme Court held :
There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and it was clearly an expenditure on revenue account.
After discussing several decisions on the subject, the Supreme Court touched upon their decision in Travancore-Cochin Chemicals Ltd.' s case (supra), vis-a-vis their decision in Lakshmiji Sugar Mills Co. (P:) Ltd. v. CIT [1971] 82 ITR 376 and observed:
... the decision in Lakshmiji Sugar Mills' case must be regarded as affording us greater guidance in the decision in the present case than the decision in Travancore-Cochin Chemicals' case. Moreover, we find that the parenthetical clause in the test formulated by Lord Cave L.C. in Atherton'scant [1925] 10 TC 155 (HL) was not brought to the attention of this Court in Travancore-Cochin Chemicals' case with the result that this Court was persuaded to apply that test as if it were an absolute and universal test regardless of the question applicable in all cases irrespective of whether the advantage secured for the business was in the capital field or not. We would, therefore, prefer to follow the decision in Lakshmiji Sugar Mills' case and hold on the analogy of that decision that the amount of Rs. 50,000 contributed by the assessee represented expenditure on the revenue account.
In the case before us, it is not in dispute that the road did not belong to the assessee and the expenditure was not in the capital field. But, at the same time, the road facilitated the business operations of the assessee and, therefore, the expenditure must be held to be laid out for the purpose of business within the meaning of Section 37. With reference to the claim for weighted deduction under Section 35C, even though the expenditure facilitated the transport of seeds, since it was not directly incurred by the assessee, it does not fall under the provisions of Section 35C. Indirect expenditure is eligible only if it is incurred in association with a body which has been approved by the prescribed authority. As at present, as there is nothing to show that Zilla Parishad was an approved body within the meaning of Section 35C, the claim for weighted deduction cannot be allowed under Section 35C. But, we direct the Income-tax Officer to allow the aggregate deductions of Rs. 6,50,000 under Section 37 of the Income-tax Act in computing the income.
16. The next item in dispute is with reference to the claim of deduction under Section 80J which is not pressed by the assessee, because it has been subsequently allowed by the Income-tax Officer.
17. The next claim of the assessee is for higher rate of depreciation in respect of machinery coming in contact with corrosive chemicals in sugar and distillery operations. This claim has been rejected because such claim had been rejected for the earlier assessment years in the assessee's own case. It is stated that the Andhra Pradesh High Court has confirmed the disallowance for the earlier year. In these circumstances, we confirm the order of the Commissioner (A) on this point.
18. Similarly, the claim for depreciation at new rates has been rejected by the Tribunal for the earlier year and the assessee has not pressed this claim.
19. In the appeal of the Revenue, there is a ground relating to the deduction of bad debts amounting to Rs. 21,520.25. The Commissioner (A) found that it was not a bad debt but only a rebate and hence not allowable as a deduction under Section 37 itself. The contention of the Revenue is that the assessee cannot avail of the provisions of Section 36 by changing the nomenclature. But, it is not in dispute that this amount related to the bills raised by the printing unit of the assessee for printing certain materials for three parties and the amount in question was a rebate granted because of the complaint by the parties that the quality of printing was not good. Obviously, on these facts the Commissioner (A) was correct in holding that it was not a bad debt at all but a straight rebate allowed in the price which has been deducted from the receipts since the assessee had received only the net amount. We, therefore, confirm the order of the Commissioner (A) on this point.
20. The last item in dispute in the appeal of the Revenue is with reference to the computation of deduction under Section 80J. It is stated that this issue has become academic and it is, therefore, unnecessary to consider the issue.
21. The assessee has not pressed the additional ground of appeal which was undoubtedly in the nature of arguments.
22. In the result, the appeal by the assessee is partly allowed while the appeal of the Revenue is dismissed.