1998 (7) TMI 19 - HC - Income Tax

Depreciation Leasing Company Investment Allowance Plant And Machinery Business Expenditure Disallowance

Summary

Issues:
1. Additional depreciation claim for machinery leased to approved hotels.
2. Consideration of medical reimbursement, personal accident insurance, electricity charges, and salary to servants for disallowance under section 40A(5).
3. Entitlement to investment allowance under section 32A for machinery leased out.
4. Eligibility for investment allowance in the absence of manufacturing or production activity.
5. Eligibility for investment allowance under section 32A(5).

Additional Depreciation Claim for Machinery Leased to Approved Hotels:
The judgment addresses the question of whether additional depreciation is allowable under section 32(1)(iia) of the Income-tax Act for machinery leased out to approved hotels by a leasing company. The Tribunal rightly denied the claim as per the provisions of section 33, which require the machinery to be used by the assessee in an approved hotel to qualify for extra depreciation. This decision aligns with a previous ruling in a similar case.

Consideration of Various Expenses for Disallowance under Section 40A(5):
The court considered whether medical reimbursement, personal accident insurance, electricity charges, and salary to servants should be included in the overall limit for disallowance under section 40A(5). The Supreme Court's decision in CIT v. Mafatlal Gangabhai and Co. clarified that cash payments to employees, including reimbursements, do not constitute perquisites under the mentioned sections. The court rejected the distinction between "allowance" and "reimbursement" made by the assessee's counsel, emphasizing that the ruling encompassed both types of payments.

Entitlement to Investment Allowance for Leased Machinery:
Questions regarding the entitlement to investment allowance under section 32A for machinery leased out to another company were settled by the Supreme Court in CIT v. Shaan Finance. The court ruled in favor of the assessee, affirming their right to claim investment allowance despite not using the leased machinery in any industry themselves.

Eligibility for Investment Allowance without Manufacturing Activity:
The court also addressed whether the assessee could claim investment allowance under section 32A without engaging in manufacturing or production activities. Following the precedent set by the Supreme Court, the court ruled in favor of the assessee, allowing the investment allowance for machinery owned and leased out for manufacturing purposes by a different entity.

Eligibility for Investment Allowance under Section 32A(5):
In line with previous judgments, the court confirmed the assessee's eligibility for investment allowance under section 32A(5) of the Income-tax Act. The questions raised by the Revenue were answered in favor of the assessee, based on established legal principles and precedents.

This comprehensive analysis of the judgment covers the various issues addressed by the court, providing detailed insights into the legal reasoning and outcomes for each question raised.