2005 (11) TMI 385 - AT - Income Tax

Summary

Issues Involved:

1. Taxability of compensation received for loss of business.
2. Accrual of compensation income.
3. Treatment of expenses on repairs of premises.
4. Provision for pro rata premium on redemption of debentures.
5. Provision for bad debts.
6. Disallowance on account of non-repatriable foreign assets.
7. Compensation for release of employees.
8. Compensation on surrender of tenancy rights.
9. Expenses incurred on bonus issue.
10. Disallowance of expenses on food, beverages, etc., during conferences at hotels and clubs.
11. Expenditure on canteen facilities.
12. Expenses on maintenance of guest house and holiday home.
13. Interest earned on investments of spare funds and dividend.
14. Deduction under section 80HH.
15. Deduction under section 80-I.
16. Inclusion of unutilized Modvat in the valuation of closing stock.
17. Disallowance under rule 6D.
18. Expenditure on membership fees of various clubs.

Issue-wise Detailed Analysis:

1. Taxability of Compensation Received for Loss of Business:
The first ground concerns the addition of Rs. 80 lakhs as compensation for loss of business, considered taxable as business receipt under section 28(ii)(a)(b)(c). The assessee argued that the amount was a capital receipt for giving up the right to set up a new WAN business. The CIT(A) and the Tribunal upheld that the compensation was for the termination of the agency, thus taxable under section 28(ii)(b)/(c).

2. Accrual of Compensation Income:
The second ground raised by the assessee was that the compensation accrued in later years and should not be taxable in the assessment year 1992-93. The Tribunal agreed with the CIT(A) that the income accrued on 30th March 1992, thus assessable for the year 1992-93.

3. Treatment of Expenses on Repairs of Premises:
The third ground relates to expenses on repairs treated as capital expenditure. The Tribunal allowed the ground, following its decision in the assessee's case for the assessment year 1991-92.

4. Provision for Pro Rata Premium on Redemption of Debentures:
The fourth ground concerns the provision for pro rata premium on redemption of debentures. The Tribunal allowed this ground, following the Supreme Court decision in Madras Industrial Investment Corporation.

5. Provision for Bad Debts:
The fifth ground relates to the provision for bad debts, which was disallowed. The Tribunal remanded the issue back to the Assessing Officer to decide in light of the retrospective insertion of the Explanation to section 36(1)(vii).

6. Disallowance on Account of Non-Repatriable Foreign Assets:
The sixth ground concerns the disallowance of non-repatriable foreign assets. The Tribunal allowed this ground, following its decision in the assessee's case for the assessment year 1991-92.

7. Compensation for Release of Employees:
The seventh ground concerns compensation received for the release of employees, treated as revenue receipt. The Tribunal allowed this ground, following its decision in the assessee's case for the assessment year 1991-92.

8. Compensation on Surrender of Tenancy Rights:
The eighth ground concerns compensation received on surrender of tenancy rights, treated as revenue receipt. The Tribunal allowed this ground, following the Supreme Court decision in CIT v. D.P. Sandhu Bros. and the Bombay High Court decision in Cadell Weaving Mill Co. Ltd.

9. Expenses Incurred on Bonus Issue:
The ninth ground concerns expenses on the bonus issue. The Tribunal allowed this ground, following the Bombay High Court decision in General Insurance Corporation Ltd.

10. Disallowance of Expenses on Food, Beverages, etc., During Conferences at Hotels and Clubs:
The tenth and eleventh grounds concern disallowance of expenses on food, beverages, etc., during conferences at hotels and clubs. The Tribunal directed the Assessing Officer to recompute the disallowance, considering 25% of such expenses as spent on employees.

11. Expenditure on Canteen Facilities:
The twelfth ground concerns disallowance of expenditure on canteen facilities. The Tribunal restricted the disallowance to 10%, directing the Assessing Officer to recompute accordingly.

12. Expenses on Maintenance of Guest House and Holiday Home:
The thirteenth ground concerns disallowance of expenses on the maintenance of guest house and holiday home. The Tribunal confirmed the disallowance on the guest house and remanded the issue of holiday home expenses to the Assessing Officer.

13. Interest Earned on Investments of Spare Funds and Dividend:
The fourteenth ground concerns interest earned on investments of spare funds and dividend. The Tribunal remanded the issue to the Assessing Officer for fresh adjudication.

14. Deduction under Section 80HH:
The fifteenth ground concerns deduction under section 80HH. The Tribunal remanded the issue to the Assessing Officer, following its decision for the assessment year 1991-92.

15. Deduction under Section 80-I:
The sixteenth ground concerns deduction under section 80-I. The Tribunal allowed this ground, following the Bombay High Court decision in CIT v. Nima Specific Family Trust.

16. Inclusion of Unutilized Modvat in the Valuation of Closing Stock:
The first ground in the Revenue's appeal concerns the inclusion of unutilized Modvat in the valuation of closing stock. The Tribunal dismissed this ground, following the Supreme Court decision in Indo Nippon Chemicals Co. Ltd.

17. Disallowance under Rule 6D:
The second ground in the Revenue's appeal concerns disallowance under rule 6D. The Tribunal allowed this ground, following its decision in the assessee's case for the assessment year 1991-92.

18. Expenditure on Membership Fees of Various Clubs:
The fifth ground in the Revenue's appeal concerns expenditure on membership fees of various clubs. The Tribunal dismissed this ground, following its decision in the assessee's case for the assessment year 1994-95.

Conclusion:
Both the appeals were partly allowed. The Tribunal upheld the CIT(A)'s decision on several grounds while remanding some issues back to the Assessing Officer for fresh adjudication.