(1.) This reference arises out of the income-tax assessment of Indian Oxygen Ltd., the assessee, in the assessment year 1976-77 the relevant accounting year ending on September 30, 1975. The Income-tax Officer while making the assessment disallowed deduction claimed under Section 80J in respect of a high purity gas manufacturing unit on the ground that the said unit commenced commercial production with effect from April 1, 1975. The Income-tax Officer allowed deduction only for six months in respect of the capital employed in respect of the said plant at the rate of 6%.
(2.) In respect of other capital, the assessee included in the computation the value of the assets and liabilities at the beginning of the computation period and also the proportionate average of the increase or decrease of assets and liabilities during the year without considering the bank overdraft allocable to the said unit. The Income-tax Officer proceeded on the basis of the assets and liabilities as on the first day of the computation period but did not take into account the average increase or decrease of such assets and liabilities.
(3.) In the said assessment year, the assessee paid gratuity to one of its directors. In the computation of the total taxable income, the Income-tax Officer found that such gratuity had been paid in excess of the limit permitted under Sections 40(c) and 40A(5) of the Act and disallowed the said excess amount. The amount paid by way of gratuity to a retired director was treated as salary for the said purpose.