The Supreme Court has set aside the ruling of the Calcutta High Court in the Commissioner of Income Tax vs Hoogly Mills Co Ltd case and denied depreciation on the gratuity liability of the buyer of a company. The mills had purchased an undertaking, taking over the accrued and future gratuity liability of the seller. 
 
The mills then claimed the total amount as capital expenditure, entitled to depreciation. The revenue authorities argued that it was revenue expenditure. 
 
The Supreme Court rejected this, but allowed the appeal on another ground. Under Section 32 of the Income Tax Act, depreciation is allowable only in respect of buildings, machinery and similar tangible assets or intellectual property like copyrights and franchises. 
 
The liability to pay gratuity of the employees does not fall under any of these categories. Therefore, no depreciation can be claimed even if it is regarded as capital expenditure. 
 
Export notification 
 
The Supreme Court has upheld the Gujarat High Court order allowing Asian Food Industries Ltd to export 87 containers of pulses to West Asia, despite a temporary ban imposed on June 27. The exporter had received orders before the June 27 notification and the goods cleared by the Customs authorities. Bills of lading were also issued. 
 
However, the consignment were not loaded in the ships because of the notification. Then another notification was issued on July 4 permitting export of pulses against irrevocable letters of credit opened prior to June 22. The exporter sought to load the goods in view of the latter notification. The request was refused. 
 
The issue was taken to the Gujarat High Court, which held that the exporter was entitled to load the pulses in terms of the policy decision despite the notification. This view was upheld by the Supreme Court. In a similar case involving Agri Trade India Ltd, the Delhi High Court had declared the July 4 notification illegal. The Supreme Court held that the Delhi High Court view was not sustainable. 
 
Notice to Siemens 
 
The Supreme Court last week allowed the appeal of Siemens Ltd against the show-cause notice issued to it by the Bombay Municipal Corporation demanding cess on goods supplied by it from outside the jurisdiction of the corporation. 
 
The Supreme Court stated that though it was in the form of a show-cause notice, in fact it was a demand giving detailed reasons. The Bombay High Court had dismissed the company's petition treating it as a mere show-cause notice. 
 
The Supreme Court held that the high court was wrong in doing so. The show-cause notice has stressed the liability of the company and only the quantification of the cess was to be determined. The high court had dismissed the petition without going into the issues. 
 
Computer programme 
 
The dispute over bids for the fourth phase of the Rajiv Gandhi Computer Literacy Programme was solved by the Supreme Court by apportioning 100 schools on BOT basis to a consortium led by Educomp Solutions Ltd. NIIT, the rival contender, will supply equipment to 200 schools. 
 
The Supreme Court observed in the appeal, Assam Electronics Development Corporation Ltd vs Educomp Solutions Ltd, that the tender was vitiated by non-disclosure of the scoring methodology, lack of transparency and lack of accountability. 
 
The Guwahati High Court had quashed the whole contract. Since litigation should not be allowed to affect education and there was considerable delay in the project, the Supreme Court asked the Assam corporation to start the programme within two weeks. 
 
E-auction 
 
Electronic advertisements (e-advertisements) or e-tenders would be welcome but then there should be greater transparency in their conduct, the Supreme Court said last week. 
 
The court said so while upholding the Guwahati High Court judgement setting aside the e-auction scheme of Coal India Ltd, in a large number of appeals. The high court said the method adopted was arbitrary. The chairman of the Coal India Ltd had no authority to frame such a scheme. 
 
Coal India's appeal against the high court judgement was dismissed. E-auction was introduced also by Western Coal Field Ltd. It was challenged in the Madhya Pradesh High Court, which held that the scheme was valid. 
 
On appeal, the Supreme Court has set aside the MP judgement. Several petitions pending in the high courts were transferred and the Supreme Court gave a final ruling on all these issues.

M J Antony