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2002 (8) TMI 93 - HC - Income TaxDepreciation, Business Expenditure, Disallowance, Expenditure On Sales Promotion - 1. Whether the Income-tax Appellate Tribunal was justified in law in holding that depreciation allowance under section 32 of the Income-tax Act, 1961, was not allowable to the appellant-company in respect of the property purchased from Punjab Financial Corporation? - 2. Whether the Income-tax Appellate Tribunal was justified in law in disallowing Rs. 75,000 out of sales promotion expenses in the absence of any material to support it? - there is no material on record to show that any part of the sales promotion expenditure was incurred for non-business purposes. The Tribunal has not given any basis whatsoever while confirming the disallowance to the extent of Rs. 75,000. All that the Tribunal observed was that the disallowance of Rs. 75,000 under this head will meet the ends of justice. The approach of the Tribunal in dealing with this aspect of the matter was erroneous and cannot be sustained.
Issues Involved:
1. Depreciation Allowance under Section 32 of the Income-tax Act, 1961. 2. Disallowance of Rs. 75,000 out of Sales Promotion Expenses. Issue 1: Depreciation Allowance under Section 32 of the Income-tax Act, 1961 The appellant-assessee, engaged in the business of bottling and marketing Indian made foreign liquor, acquired a factory from the Punjab Financial Corporation. The agreement dated March 26, 1996, stipulated that ownership would remain with the Punjab Financial Corporation until full payment was made, with the appellant holding the property as a trustee until March 15, 1999. The Assessing Officer denied depreciation under Section 32(1) of the Income-tax Act, 1961, since the assessee was not the owner of the factory. The Tribunal upheld this decision, stating that depreciation requires ownership and usage of the asset in business, both of which must be satisfied. The Tribunal found that the appellant did not acquire ownership due to incomplete payment. The appellant's counsel cited the Supreme Court's judgment in CIT v. Podar Cement Private Ltd., which interpreted "owner" to include individuals entitled to receive income from property, regardless of legal title. The Supreme Court emphasized practical ownership over legal title in tax contexts, suggesting that possession with the intention to exclude others indicates ownership. Further reliance was placed on Mysore Minerals Ltd. v. CIT, where the Supreme Court held that depreciation should be allowed to the person with dominion over the asset, even without formal conveyance of title. The appellant argued that since they had possession and made part payments, they should be entitled to depreciation. The court concluded that the appellant was entitled to depreciation under Section 32, aligning with the Supreme Court's interpretation that practical ownership and usage for business purposes fulfill legislative intent. Issue 2: Disallowance of Rs. 75,000 out of Sales Promotion Expenses The appellant claimed Rs. 23,75,170 in sales promotion expenses. The Assessing Officer disallowed 50% of the expenditure, deeming it non-business related, and initiated penalty proceedings. The Commissioner of Income-tax (Appeals) allowed Rs. 10 lakhs, confirming Rs. 1,83,585 as personal expenditure. The Tribunal reduced the disallowance to Rs. 75,000, stating it would "meet the end of justice" without providing a basis. The appellant contended there was no evidence that any part of the expenditure was non-business related, making the Tribunal's decision erroneous. The court found no material on record to support the Tribunal's disallowance and set aside this part of the order, concluding that the Tribunal's approach was unsustainable. Conclusion: The appeal was allowed, granting depreciation under Section 32 and overturning the disallowance of Rs. 75,000 in sales promotion expenses. The court directed both parties to bear their own costs.
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