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The Fed just put global financial markets on notice. The Apex Court in the aforesaid judgment of Indo Nippon Chemicals had an occasion to consider this aspect. In para 3 of the Judgment, the question was formulated as under:. In such accounting, the assessee should include the amount of any tax duty, cess or fee incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
Therefore, prior to this introduction of the provision, if the assessee has followed a particular accounting practice where the cost of raw-material is taken into consideration as net value, even while determining the value of the finished products that net value could have been adopted. There was no obligation to include any tax, duty, cess or fee in the cost of raw-material. Having regard to the confusion on the conflicting views expressed by various Courts, the Parliament thought it fit to amend the law and introduce Section A taking away the decision which was in favour of the assessee.
Now it is made clear that whatever may be the accounting practice adopted by the assessee, the cost price of the raw-material should include tax, duty, cess or fee and correspondingly, the said amount should be reflected in the opening stock as well as in the closing stock. Under the MODVAT scheme, once an assessee pays excise duty when the finished goods are liable for excise duty, he is entitled to set-off that duty payable by him as against the duty he has paid while purchasing the raw-material.
He can avail the benefit whenever he makes sale and the liability to pay the duty arises. But that amount i.
Section 43B provides that if a deduction is claimed of duty, unless the duty is paid, he would not be entitled to claim deduction. Now, the question before this Court is not claiming deduction as an expenditure.
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The question is whether the unavailed credit constitutes income which is liable to income-tax in the hands of the assessee. Therefore, in terms of the order of the Tribunal, it is open to the assessing authority to recompute the opening and closing balance by adding the duty paid and duty availed but on the unavailed MODVAT credit, there is no liability to pay any tax.
Wipro Accused Of Breaking Marriage
Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. The assessee company has various business activities which are controlled by four business units, having separate accounts and functioning as independent profit centre. These units have separate profit and loss account and balance sheet. The assessee filed returns for assessment year on One of the points of controversy is that the assessee has made commission payments of Rs. The directors of the company were entitled for commission on the services rendered on the basis of percentage of profit earned.
The commission paid to its directors was allocated by the assessee to the units which these directors are heading as whole time directors. The assessing authority was of the view that allocation of this commission should be on the basis of the profits earned by each unit. Therefore the assessing authority re-allocated the said commission on the basis of profits earned by each unit.
The following table shows the allocation made by the assessee and re-allocation made by the assessing authority. The appellate authority declined interference with the said order of the assessing authority. Aggrieved by the same, assessee has preferred an appeal to the Tribunal. The Tribunal held that the profit from the undertaking which is qualifying for deduction under Section 10 A is a source of making payment of commission to the directors.
The payment of commission is directly debitable to the said undertaking. Therefore, the assessing officer has rightly allocated the commission expenditure to the undertaking eligible for deduction under Section 10A and affirmed the findings recorded by the assessing authority. It is against these findings the assessee has preferred these appeals.
The learned Senior Counsel appearing for the assessee contended that, it is not in dispute that the salary paid to the directors are allocated to the units which they are heading as whole time directors. Commission is a part of salary. The ability of earning profits in the future in a competitive environment depends on the strategies and the investment decisions made on an ongoing basis. Such decisions are taken up by the directors of the company collectively. Even though credit should go to all directors collectively irrespective of the unit which is making profit, it cannot be ignored that each one of them is in-charge of the respective unit exclusively.
When salary is paid to them irrespective of the profits earned by the units it follows that the commission paid which is part of the salary should also be allocated to each unit, which they are heading. This concept that commission is directly debitable to the profits of the unit and therefore it should be allocated to the profit making unit to the extent of profit made has no legal basis. Per contra, learned Senior Counsel appearing for the revenue submitted when Section 10A unit is the source of making payment of commission, the commission paid to the extent of percentage of profit made should necessarily be allocated to the said unit, otherwise the profit margin of the unit which is exempted from payment of tax would be huge and such determination is improper and therefore he submits the allocation of commission to 10A unit made by the authorities is legal and valid and did not call for any interference.
It is not in dispute that the assessee is carrying on various business activities through its business units. These units have separate account and function as independent profit centres. The accounts of the assessee are consolidation of units accounts. Each unit has separate profit and loss account and balance-sheet. There are four directors in the assessee company. Each one of the directors are full time directors who are managing these units. The salary is paid by the assessee and the salary so paid admittedly is allocated to each unit which they are heading. Section of the Companies Act deals with overall maximum managerial remuneration payable to the directors which reads as under:.
Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits. Provided that nothing in this section shall affect the operation of sections to and to The company may pay managerial remuneration to its directors.
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Section 17 1 of the Income-tax Act, defines what is salary for the purposes of Sections 15 and 16 of the Act, which reads as under:. The aforesaid provisions make it clear that salary includes commission. When the salary paid to a director by the assessee is allocated to the unit which the said director is heading as full time director, the commission paid to him which is a part of salary also needs to be allocated to the units which he is heading.
When the salary paid to whole-time director is not dependent on profit the unit which the director is heading is making, the commission payable at the end of the year when the company makes profit, is nothing but a part of the salary. Therefore, it also has to be allocated to the unit which he is heading as a full time director.
Wipro’s dating allowance is trouble for Premji - Times of India
Though there are four units and each unit is carrying on different activities, assessee maintained separate accounts, preparing separate balance-sheets and also preparing profit and loss account, but in law it is the consolidation of four accounts which would be the account of the assessee. It is from the profits derived by the assessee that the salary is paid. The payment of the salary as it is not dependent on the profit earned by any unit, the basis of commission payable by the assessee to its directors also cannot be made subject to the profit making ability of a unit.
Merely because by such allocation the profit margin of 10A unit is going to increase cannot be the basis to allocate the commission paid to the directors proportionately to the profit making unit. In that view of the matter we do not see any justification to deny the benefit which the assesseee is entitled to. The impugned orders passed by the authorities has no legal basis. On the contrary it runs counter to the statutory provisions.
In that view of the matter the substantial question of law is answered in favour of the assessee and against the revenue.
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As the question of law involved is the same, these two substantial questions of law are taken up for consideration. In substance, the question for consideration is, whether profits derived from AMC and profits derived from sale of monitors are eligible for exemption under Section 80IB of the Act? The assessee is manufacturing computers. For the purpose of sale of these computers manufactured they have two schemes.
The first scheme is, on the payment of a certain discounted amount, the assessee affords a three year warranty against sales of computers. The second scheme is, the warranty period is restricted to one year and the customer is permitted to take out an annual maintenance contract AMC for the balance of two years. The assessee claims that AMC charges are also derived from the sale of computers and eligible for deduction under Section 80IB. The assessing authority was of the view that the units at Pondicherry are mainly production units and it is incorrect to conclude that AMC income is integrally connected with those units.
Both the Commissioner of Income Tax Appeals and the Tribunal have upheld the said order of the assessing officer. Aggrieved by the said orders, the assessee is before us. Per contra, the learned senior Counsel appearing for the revenue contends that, the profits derived from AMC has no direct nexus with the manufacturing activity, it does not fall within first degree and, therefore, as held by the Apex Court in the very same judgment, they are not eligible for deduction. The assessee manufactures computers at its Pondicherry unit.
It also sells computers manufactured therein. It has two schemes for sale of such computer. For the first scheme, a three year warranty against sale of computers is granted. Similarly, in the second scheme, one year warranty is granted.
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The revenue has accepted this position and has given the benefit of Section 80IB to the total consideration in both the cases. Now, the dispute is regarding the profit arising out of AMC contract of two years in the second scheme where only one year warranty is agreed and two years AMC is provided. In this context, it is necessary to look at Section 80IB. Section 80IB deals with deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.
Section 80IB 1 reads as under:. Sub-section 3 provides for the percentage of deduction such an industrial undertaking is entitled to out of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years. Sub-section 4 provides for the benefit being extended to an industrially backward State specified in the Eighth Schedule.