2003 (7) TMI 20 - HC - Income Tax

Business expenditure - 1. Whether, Tribunal was justified in allowing the claim of the assessee in respect of depreciation, power charges, engine-hire, despite the fact that business remained closed during the relevant accounting year? - 2. Whether, Tribunal was justified in deleting the disallowance of claim of expenditure incurred on medical treatment of Shri R. K. Golecha, M. D., in the USA, despite the fact that the expenditure was in the nature of personal expenditure of Shri Golecha? - We answer the first question that the assessee is entitled for deduction in respect of power charges and engine-hire charges. However, the assessee is not entitled for depreciation. Question No. 2 we answer in the negative i.e., in favour of the Revenue and against the assessee.

Summary

Issues:
1. Allowance of depreciation, power charges, and engine-hire despite business closure.
2. Disallowance of medical treatment expenditure reimbursement.

Issue 1: Allowance of Depreciation, Power Charges, and Engine-Hire despite Business Closure:

The case involved an assessee engaged in gypsum mining during the assessment year 1984-85. The Assessing Officer disallowed the depreciation, power charges, and engine-hire charges as the business remained closed. The Commissioner of Income-tax (Appeals) allowed power charges and engine hire charges but disallowed depreciation. On appeal, the Tribunal allowed both depreciation and the medical expenditure reimbursed to the managing director. The Tribunal justified depreciation on the grounds that when machinery is ready for production, depreciation is permissible. However, the High Court held that depreciation is only allowed when machinery is actually used for production. As the machinery was not utilized during the relevant year, the depreciation claim was not justified. The High Court upheld the view of the Assessing Officer and the Commissioner of Income-tax (Appeals) regarding depreciation.

Issue 2: Disallowance of Medical Treatment Expenditure Reimbursement:

The second issue revolved around the deduction of Rs. 1,51,190 incurred on the medical treatment of the managing director. The expenditure included not only hospital bills but also airfare to the USA. The assessee argued that the board resolution approved this payment, indicating it was for business purposes. However, the Assessing Officer and the Commissioner of Income-tax (Appeals found the expenditure to be of a personal nature, not related to business. The High Court emphasized that the burden of proof lies on the assessee to establish that such expenses are for business purposes. In the absence of supporting material beyond the board resolution, the High Court agreed with the lower authorities that the expenditure was personal and not for business. The Tribunal's decision to allow this expenditure was deemed erroneous and not for the purpose of business. Therefore, the High Court ruled in favor of the Revenue and against the assessee, upholding the disallowance of the medical treatment expenditure reimbursement.

In conclusion, the High Court ruled that the assessee was entitled to deduction for power charges and engine-hire charges but not for depreciation. Additionally, the High Court upheld the disallowance of the medical treatment expenditure reimbursement, emphasizing that the expenditure was of a personal nature and not for business purposes.