Daks Copy Services Pvt. Ltd. v. Income Tax Officer

R.L Sangani, J.M:— One of the questions that requires decision in these appeals by the assessee for the asst. yrs. 1982–83 and 1983–84. is whether investment allowance under s. 32A of the IT Act, 1961 was allowable to the assessee on zerox and photocopying machines. The same question had come up for consideration before ‘B’ Bench of the Appellate Tribunal, Bombay in the assessee's case for asst. yr. s 1979–80 and 1980–81 in I.T.A Nos. 4355 and 4356.Bom/82 and the Tribunal by order dt. 31st Dec., 1983 had held that the assessee was not entitled to investment allowance on these machines because, according to the Tribunal, the activity carried on by the assessee was that of rendering services to its clients in taking out the necessary copies required by them by employing the process of photocopying with the necessary machinery and equipments and that said activity could not be regarded as activity of manufacturing and selling those photocopies or zerox copies of documents to its clients and that the activity did not involve any industrial activity. The Bench of the Tribunal before whom the present appeals for asst. yrs, 1982–83 and 1983–84 initially came up for hearing found that a contrary view had been taken on this point by another Bench in the case of B.V Date v. ITO (1TA No. 3603.Bom/83 decided on 24th March, 1984) and that it was necessary to resolve the conflict as the point was of repetative nature. Consequently, the said Bench requested President to constitute a larger Bench of three members so that the said conflict could be resolved., Accordingly the present Bench has been constituted by the President.

2. The learned departmental representative by way of a preliminary objection submitted that since the point in controversy, after elaborate discussion, had been decided against the assessee by the Tribunal in the appeal for earlier years and the matter was pending before the High Court in Reference under s. 256(1) of the Act, the same view should be adopted for the assessment years with which we are concerned and that no departure from that view should be made on the sole ground that a different view had been taken in the case of another assessee by another Bench of the Tribunal.

3. We have considered the above submission. We find that on this aspect the view of the Madras High Court as expressed in CIT v. L.G Ramamurthy, 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad) on which the learned departmental representative has relied, was that a Bench of the Tribunal should not normally take a different view from that already taken by another Bench when facts are identical and that if the subsequent Bench considers the earlier view to be erroneous, the proper course for it was to place the matter before the President of the Tribunal so that a larger Bench was constituted consisting of three or more members for which there was a provision in the IT Act itself. In the present case that very course as has been suggested by the Madras High Court has been adopted by the Division Bench before which the appeals had at the initial stage came up for hearing, when the said Bench found that there were conflicting decisions of the Benches of the Tribunal and as such we are bound to consider all the aspects of the point in controversy afresh and come to independent conclusion and the fact that in the earlier years the point had been decided against the assessee would not by itself preclude the special Bench from taking a contrary view.

4. We now proceed to consider the case on merits. The assessee derived income from photocopying of documents. The business is on large scale as would be apparent from the following figures;

Asst. year Turnover Materials etc. consumed 1979–80 4,43,182 1,66,814 1980–81 5,16,692 2,21,892 1981–82 5,98,416 2,21,974 1982–83 14,33,348 6,73,468 1983–84 8,20,595 3,23,032

5. The work done by the assessee was in the nature of zerox printing and rotary copying and the process involved in this work required following types of machinery:

(1) Rank Zerox : For taking out Masters for printing: (2) Transfer Printing Machines : Masters are put to these machines which take out copies from 1 to 5,000 or more. (3) Auto Copies Cannon : Which takes out copies 1 to 20 in few seconds. (4) I.B.M Typewriter : For typing like printed letters and then copying.

The materials used are Toner, Developer, Masters, Ratafix and Rotafound solutions, ink, papers, folders etc. The assessee has been registered as a small scale industrial unit by the” Directorate of Industries, Government of Maharashtra. The activity mentioned in the certificate of Registration as a small scale industrial unit is “ZEROX printing and rotary copying.” It is further mentioned in the said certificate that the afore mentioned activity had been defined as “Service Industry” under Rule 27.

6. In the accounting years relevant to asst. yrs. 1982–83 and 1983–84 the assessee installed certain machinery in respect of the business carried on by the assessee and claimed investment allowance on the cost thereof. The following are the details:

Assessment year: 1982–83

Sr. No. Machines Cost @ Investment allowance claimed 1. Transfer printing machine Rs. 93,440. 25% Rs. 23,285 2. IBM Typewriter Rs. 34,500 25% Rs. 8,625 Rs. 1,27,640 Rs. 31,910 Assessment year, 1983–84 Cannon N.P 210 Rs. 54,815 25% Rs. 23,704 Plain paper copier machine

7. The said claim was rejected by the ITO on the ground that identical claim had been rejected by him in the assessment orders of earlier years. In the appeals filed by the assessee” against said rejection of the claim the assessee filed copy of the order of the “Tribunal in B.V Date v. ITO (supra) in which the Tribunal had, on identical facts, held that investment allowance was allowable. The GIT(A) declined to follow the said decision of the Tribunal on the ground that contrary view had been taken by another Bench of the Tribunal in the assessee's own case for asst. yrs. 1979–80 and 1980–81 in ITA Nos. 4355 and 4356.Bom/82 decided on 31st Dec, 19.83 The CIT(A) preferred to follow the decision of the Tribunal in assessee's own case rather than decision in the case of another assessee where facts were identical. The assessee has now come in further appeals before the Tribunal.

8. Shri Y.P Trivedi, the learned counsel for the assessee, submitted that the principle laid down by the Special Bench of the Tribunal in First ITO v. Dr. P. Vittal Bhat, (1984) 20 TTJ (Bang) 507 : (1984) 41 CTR (Trib) (Bang) 16 : (1983) 6 ITD 560 (Bang) wherein a medical practitioner who had installed ‘X’ Ray machine was held entitled to invest ment allowance, would be applicable to the facts of this case. He further submitted that the said decision had not been published at the time when the Tribunal had decided appeals of the assessee for earlier years against the assessee. According to him, if attention of the Bench, at the time of hearing of appeals for earlier years, had been drawn to the said decision of the Special Bench, the result in the appeals for earlier years would have been different. He submitted that development rebate had been allowed to the assessee in such of the earlier years in which provisions regarding grant of development rebate were in force and that since the conditions for grant of investment allowance were identical with those for grant of development rebate in material particulars, there was no legal justification for the department to reject the claim for investment allowance. He submitted that on the facts of the case the assessee should be regarded as industrial undertaking engaged in the business of production of an article or thing not mentioned in the Eleventh Schedule and that since the machinery in question were not office appliances, there was no reason for disallowing the claim for investment allowance. He strongly relied on the reasons given by the Tribunal in B.V Dale v. ITO (supra) wherein the claim for investment allowance on zerox machines had been allowed. He also relied on some other decisions to which we shall refer in due course on this order. He filed before us brochures in which the working of the machines in question has been explained.

9. Shri B.G Agarwal, the learned departmental Representative (sic) the Tribunal in the assessee's case for earlier years and submitted that we should not depart from the view taken therein. He submitted that the assessee could not be regarded as an industrial undertaking and the activity of the assessee could not be regarded as that of production of an article or thing. According to him, an article or thing would connote article of merchandise which could be sold in the market and that copies produced by the assessee were not saleable in the market. He submitted that machines in question were office appliances and as such investment allowance was not allowable. He relied on certain decisions to which we shall discuss in the course of this order.

10. We have considered the rival submissions and facts brought on record. The brochures explaining the working of the machines in question indicate the machines in question were high-tech copiers. One of the machines functions as enlargement/reduction copier. That means copies could be prepared in enlarged size or reduced size as required by the clients. Another machine functions as size to size copier. The machines also have colour copying capability. The assessee has filed list of parties who have availed of services rendered by the assessee with the aid of the machines. Some of those parties are well known industrial houses which required copies of large number of documents in different sizes. We have already mentioned figures of turnover and cost of materials consumed.

11. Sec. 32A(2)(iii) of the IT Act, 1961 lays down that investment allowance would be allowed in respect of machinery or plant installed after the 31st day of March, 1976 in any industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule. There are certain exceptions and the exception with which we are concerned is described as “any office appliances” in clause (b) of sub-s. (1) of s. 32A. This means that if the machinery or plant come within the ambit of the expression “an office appliances”, investment allowance would not be allowable even if the same had been installed for the purposes of aforementioned business.

12. The expression “industrial undertaking” used in s. 32A has not been statutorily defined. According to Webster's Dictionary, ‘undertaking’ connotes (i) any-thing undertaken (ii) any business, work or project which one engages in or attempts or (iii) an enterprise. Thus “undertaking” connotes activity which in commercial or business parlance means an activity with a view to earn profits. Thus the activity of the assessee would bring the assessee within the ambit of “undertaking”. As far as the expression “industry” in the term “industrial undertaking” is concerned, we have to understand the term in the context in which it is used. The expression “industry” is not confined to manufacturing activity in a factory alone. For example in s. 2(j) of the Industrial Disputes Act, 1947, the expression “industry” was defined as any business, trade, undertaking, manufacture or calling of employers and included any calling, service, employment etc. It is true that said definition is for the purposes of Industrial Disputes Act, 1947 only. However, in the context of the subject matter of investment allowance, it cannot be said that term “industry” would be confined to activity in a factory. What is to be seen is whether activity of the assessee results in manufacture or production of an article or thing. If the answer is in affirmative, the undertaking in question would be regarded as “industrial undertaking” for the purpose of grant of investment allowance.

13. The crucial question to be decided is whether the activity of the assessee resulted in manufacture or production of an article or thing, not being an article or thing specified in the list in the Eleventh Schedule. The object which is produced by the assessee is enlarged or reduced or size to. size copies of the documents of the customers. These copies are obviously not mentioned in the list in the Eleventh Schedule. The crucial question is whether the activity results in “production of an article or thing”. In other words, the question is whether copy that comes out can be said to have been “produced” and whether the said copy was an “article” or “thing” as mentioned in the relevant clause in s. 32A.

14. We are of the opinion that decision of Gujarat High Court in CIT v. Ajay Printery Pvt. Ltd., (1965) 58 ITR 811 (Guj) cited by the learned counsel for the assessee is of great assistance in arriving at the proper conclusion in our case. Explanation 2 in s. 23A of the IT Act, 1922 defined “statutory percentage” mentioned in sub-s. 23A of said Act and interalia provided that statutory percentage means in the case of an Indian Company whose business consisted wholly in the “manufacture or processing of goods”. 45 per cent. The question before the High Court was whether the company in question was engaged wholly in the manufacture or processing of goods within the meaning of that expression in said Explanation. The business of assessee was printing balance-sheets, profit and loss accounts, dividend warrants pamphlets, share certificates etc. required by the customer companies. The High Court held, that this business consisted wholly of “manufacture of goods” within the meaning of clause (ii) of Explanation 2 to s. 23A of the IT Act, 1922. The reason given was that the balance-sheet or pamphlet or share certificate Which was printed by the assessee was “an article quite different from the raw materials, paper and ink from which it is made, the use of which would be different from the use of raw materials used in producing it.”

15. In the present case also raw materials used are, inter alia, paper and ink. The product that comes out, viz. “copy of document” is quite different from raw materials. used, viz. paper and ink. The use of the copy which comes out would be different from the raw materials used in producing it.

16. There is thus no material difference in the nature of facts in that case and in our case. In that case there was printing press. Here we have zerox machine. In that case the raw materials were paper and ink. Here also raw materials were paper and ink. In that case document was given to the assessee by the customer and assessee was required to print on plain paper what was written on the document. Here also document was given to the assessee and the assessee was required to produce copy of that document on plain paper. In that case it was held that activity mentioned to “manufacture of goods”. We may not go that far but we must hold that activity amounted to “production of article or thing”. The expression “production of article or thing” has wider connotation than the expression “manufacture of goods”. Consequently the activity which would corns within the ambit of “manufacture of goods” would inevitably come within the ambit of “production of article or thing”. Every manufacture of article is production of article although every production of article may not be manufacture of article. Consequently on the basis of the above decision it must be held that the assessee was engaged in the activity of “production of article or thing” within the meaning of that expression in s. 32A of the Act.

17. On the question of distinction between manufacture of an article and production of an article, the decision of Allahabad High Court in Singh Engineering Works Pvt. Ltd. v. CIT, 1978 CTR (All) 201 : (1979) 119 ITR 891 (All) to which our attention was drawn on behalf of the assessee is significant, It is expressly laid down therein that broad distinction between manufacture and production was that manufacture involved bringing into existence of a new product, a product which is of a different chemical composition or whose integral structure was different from the raw materials while production as distinguished from manufacture, was nothing except bringing into existence a product after processing the raw material in a manner which might not change the inherent quality or chemical composition of the raw material. Applying this principle the High Court held that the processing to which the billets were put in order to make iron rods and bars was “production”. When this test is applied to the processing done by the assessee with the aid of machines, the conclusion is that what comes out results in production of an article or thing. This decision supports the conclusion to which we have already reached.

18. We may mention here that some of the decisions of the Tribunal to which our attention was drawn by the learned counsel for the assessee have taken similar view as regards the connotation of expression “production of article or thing”. For example, in Krishna Associates v. TTO, (1987) 28 TTJ (Bang) 494 : (1987) 22 ITD 530 (Bang) it was held that computer purchased to process data and to take out prints was entitled to investment allowance because computer print-outs were things produced by the assessee. It was observed that the word “production” had wider meaning than the word “manufacture”. In Amiya Kumar Tarafdar v. TTO, (1985) 14 ITD 172 (Cal) colour photo developing machine which accepted negative, cut paper fed into it into different sizes and developed, printed and delivered final product in different colourful sizes and designs, was held eligible for investment allowance.

19. The decision of Madras High Court in CIT v. Buhari Sons Pvt. Ltd., (1983) 144 ITR 12 (Mad) on which reliance had been placed on behalf of the department by Shri Aggarwal and which had also been relied on by the Tribunal in the assessee's case for earlier years in which this point was decided against the assessee in support of his contention that since the copies produced by assessee could not have been sold in the open market, they did not come within the ambit of the expression “article or thing” in s. 32A(2)(iii) of the Act is of no assistance in the present case. The Madras High Court was concerned in said decision with the interpretation of the “goods” in the expression “manufacture of goods” in s. 2(7)(d) of the Finance Act, 1966. The High Court held that a hotel was not an industrial company because eatables prepared by the hotel do not come within the ambit of “goods”. In the context of said provision, the High Court held that “goods” connoted articles of merchandise and not eatables-prepared by the hotel and that said term had been used in s. 2(7)(d) in the sense of articles fox sale.

20. In this connection, we may point out that it has also been observed in said decision that it was well established that in the absence of any definition in the statute words occurring in the statute would have to be understood with reference to the objects of the acts and in the context in which they occur. Consequently, interpretation put on the words in one statute could not automatically be imported for interpreting the same words in another statute. In the present case copies which are produced from the machines in questions are sold to the customers. It is not necessary that the copies should be articles which could be sold in the open market to any other person. In this connection, we may refer to the decision of the Bombay High Court in the case of CIT v. Pressure Piling Co. (India) P. Ltd., (1980) 126 ITR 333 (Bom) in which expression “manufacture or production of articles” within the meaning of s. 84(2)(iii) of the Act was interpreted. The following observations in said decision are relevant for our present discussion.

“It is difficult to see how the product which ultimately results from the piling process cannot be said to be an independent article. It is also not necessary that all articles must necessarily have the quality or the possibility of being sold and purchased across the counter or it must necessarily be transportable to another site before it can be classified as an article. A particular manufacturer specialising in the production of a particular product may, by way of a special facility to certain customers, undertake to produce and supply it at the site itself, and, therefore, the site where the manufacturing process is carried on would be immaterial or irrelevant for the purpose of determining whether the product of the manufacturing process can be described as an article”.

The above observation is complete answer to the contention raised on behalf of the department. The said observation is an authority for the proposition that it was not necessary that the production in question should necessarily have a quality or possibility of being sold and purchased across the counter in order that such products could be termed as “article or thing”. Consequently, mere fact that the copy produced by the assessee would not be sold in the open market to any other person would not mean that those copies were not articles or things produced by the assessee within the meaning of s. 32A(2)(iii) of the Act. It was submitted on behalf of the department that since there was nothing on record to show that the assessee was paying sales-tax on the copies that were produced by the assessee, it should be held that the copies that were produced were not articles or things. We are unable to accept this submission. The assessee was not dealing in the copies and as such there was no question of the assessee paying sales-tax on the copies delivered to the customers. Secondly, mere fact that the sales-tax was not payable in the transaction between the assessee and its customers would not lead to the conclusion that what was produced by the assessee was not an article or thing within the meaning of s. 32A(2)(iii) of the Act.

21. The learned departmental representative cited certain decisions in which it was held that:

(i) when the assessee exhibited films on the screen with the aid of cinematograph projector [Ega Theatre v. 8th ITO, (1986) 24 TTJ (Mad) 199 : (1986) 15 ITD 432 (Mad)];

(ii) when the assessee printed cloth [ITO v. Sharwan Kumar, (1986) 19 ITD 756 (Amr)];

(iii) when the assessee engaged in running an automobile workshop, repairs engines [Popular Garage v. ITO, (1986) 16 ITD 677 (Cochin)];

(iv) when the assessee running a hotel prepared food [Hotel Banjara Ltd. v. ITO, (1986) 16 ITD 692 (Hyd)];

(v) when the assessee who was a Clinical Bio-Chemist took blood or urine from patients and prepared slides of culture and examined blood or urine and gave a report [Dr. PS. Pargonkar v. ITO, (1986) 16 ITD 170 (Hyd) (SMC)]; and

(vi) when the assessee after purchasing chillies sorted, graded, clipped and stemmed them in order to prevent deterioration and with a view to give better polish and appearance [Addl. CIT v. Chillies Export House Ltd., (1978) 115 ITR 73 (Mad)].

the assessee was not entitled to investment allowance under s. 32A. The facts in such cases do not resemble the facts with which we are concerned. Consequently, such decisions are of no assistance. Considering the entire circumstances, we are of opinion that the assessee was engaged in the business of production of article or thing within the meaning of s. 32A(2)(iii) of the Act.

22. The next question to be decided is whether the machines in question could be regarded as office appliances within the meaning of cl. (b) of proviso to s. 32A(1) of the Act. It is laid down therein that no deduction under s. 32A(1) would be allowed in respect of any office appliances. The expression “office appliances” has not been defined under the Act. The plain meaning is an appliance which is directly used for office purposes i.e as an aid or a facility for the proper functioning of the office. Thus, the functional test is to be applied in order to determine whether a particular article or thing was an office appliance within the meaning of that expression under cl.(b) of proviso to s. 32A(1) of the Act. If the function is to assist in the normal office work then the said appliance would be office appliance. On the other hand, if the function is not to aid the working of the office but to be a source for earning the income of the business, then the said appliance would not be office appliance. In this view of the matter, internal telephone system installed in a factory was not considered as office appliance in CIT v. Mohan Meakin Breweries Ltd., (1980) 122 ITR 203 (HP) by the Himachal Pradesh High Court and data processing machine was not considered as office appliance by the Bombay High Court in Commissioner Of Income-Tax, Bombay City-I v. I.B.M World Trade Corporation, (1981) 130 ITR 739 (Bom) and Commissioner Of Income-Tax, Bombay City-Ii v. International Computers Ltd., (1981) 131 ITR 1 (Bom). The machines with which we are concerned do not function as an aid for the proper functioning of the office of the assessee. In fact they are commercially exploited by the assessee for earning the income. Consequently, they could not be regarded as office appliances within the meaning of cl. (b) of proviso to s. 32A(1).

23. For the reasons given above we hold that the assessee was entitled to investment allowance on the machines in question under s. 32A(1) of the Act. We set aside the orders of the authorities below on this point and direct the ITO to grant investment allowance, if other conditions are found to have been fulfilled.

24. The only other ground that requires decision relates to disallowance in respect of motor car expenses. The assessee-company did not own any motor car. Each of the two Directors owned a car. All the expenses incurred on these two cars were borne by the assessee. These two ears were used by the Directors partly for business purpose and partly for their personal purposes. Each Director paid Rs. 2,400 to the assessee for personal use of the car. The total expenses incurred on these two cars came to Rs. 46,014 for the asst. yr. 1982–83 and Rs. 47,937 for the asst. yr. 1983–84. For the asst. yr. 1982–83 the ITO estimated ⅓rd of the total expenses as expenses for personal use. The expenses for personal use thus came to Rs. 15,338. The ITO deducted Rs. 4,800 paid by the two Directors to the assessee for personal use of the cars from the above amount and disallowed the balance of Rs. 10,538 in the computation of profits and gains of the business. For asst. yr. 1983–84 the disallowance made by the ITO came to Rs. 9,578. The assessee went in appeal before the CIT(A) against the said disallowance. The CIT (A) confirmed the disallowance of Rs. 10,538 in his order for the asst. yr. 1982–83 for reasons given by him in his order for the asst. yr. 1981–82. In his order for asst. yr. 1983–84 the CIT(A) reduced the total expenses of Rs. 47,934 by Rs. 4,800 and 1/5th of the balance of Rs. 43,134 amounting to Rs. 8,627 was estimated by him as expenditure for personal use which was required to be disallowed. Thus, for the asst. yr. 1983–84 he reduced the disallowance of Rs. 9,578 made by the ITO to Rs. 8,627. The assessee has now come in further appeals before us against the said disallowance.

25. The submission of Shri. Y.P Trivedi, the learned counsel for the assessee before us was that the above mentioned amounts of Rs. 10,538 and Rs. 8,627 for asst. yr. 1982–83 and 1983–84 respectively in respect of personal use of the cars should be considered as benefit given by the assessee to the Directors and as such, the disallowance in respect of these two amounts should be computed in accordance with the provisions of s. 40(c) of the Act. He submitted that these two amounts could not be disallowed under s. 37(1) of the Act in the computation of profits and gains of the business. He strongly relied on the decision of the Tribunal in the assessee's own case for asst. yrs. 1979–80 and 1980–81 in which it was held on identical facts that expenditure attributed to personal use of the cars by the directors should be included in the computation under s. 40(c) of the Act for disallowance and that the said amounts were not liable to be disallowed under s. 37(1) of the Act.

26. Shri Aggarwal, the learned departmental representative submitted that the above disallowance represented expenditure which had been incurred for non-business purposes and as such disallowance under s. 37(1) of the Act was justified. He relied on the decision of the Tribunal in the appeal for asst. yr. 1981–82.

27. We have considered rival submissions. We find that the identical point nad arisen for consideration in the first instance in the appeals for 1979–80 and 1980–81 in ITA No. 4355 and 4356.Bom/82. The Tribunal in the order dt. 31st Dec, 1983 for those two assessment years accepted the submission of the assessee and held that the disallowance should be considered under s. 40(c)/40A(5) of the Act. However, when the identical question came up for consideration before another Bench of the Tribunal in ITA No. 4058.Bom/84 for asst. yr. 1981–82, the attention of the said Bench was not drawn to the earlier decision for asst. yrs. 1979–80 and 1980–81. The Bench dealing with the appeal for the asst. yr. 1981–82 rejected the submission of the assessee to the effect that disallowance should not be made under s. 37(1) of the Act and that the disallowance should be computed in accordance with the provisions of s. 40(c) of the Act. The main reason given by the Bench for rejecting the submission of the assessee was that the cars belonged to the Directors and not to the assessee company. There is, thus, apparent conflict on this point between the two Benches of the Tribunal. This conflict has not been referred to the Special Bench but we have to resolve the same while disposing of these appeals.

28. After considering the entire circumstances, we find that the expenses must be regarded to have been incurred wholly and exclusively for the purposes of business. Disallowance under s. 37(1) of the Act could not be made in respect of those expenses. It is not disputed that if the cars had been owned by the assessee, the expenditure attributable to personal use of the cars by the Directors would have been required to be included in the computation for disallowance under s. 40(c) of the Act, and such expenditure would not have been disallowed under s. 37(1) of the Act. Mere fact that cars belonged to the Directors would not make any difference in the legal position. This is because, nature of expenditure is identical, viz. for maintenance of the cars. The cars have been maintained for business purpose and the fact that part of the expenses would be attributed to personal use of the cars by the Directors would mean that said part of the expenditure constituted perquisites or benefit to the Directors. Sec. 40(c) of the Act empowers the ITO to disallow the expenditure which results in remuneration benefit or amenities to the Directors, if the said expenditure was in excess of the limits prescribed under the said provision. Consequently, in the present case, the above mentioned two amounts of Rs. 10,538 and Rs. 8,627 for asst. yr. 1982–83 and 1983–84 respectively would be liable to be included in the computation under s. 40(c) of the Act, for working out the disallowance. We, accordingly, set aside the orders of the ITO and the CIT(A) on this. item and direct the ITO to include these amounts in the computation for disallowance under s. 40(c) of the Act.

29. In the result, the appeals are allowed.