1998 (1) TMI 43 - HC - Income Tax

Actual Cost, Export Market Allowance, Depreciation, Extra Shift Allowance, Investment Allowance, Weighted Deduction

Issues Involved:
1. Depreciation and extra shift allowance on increased machinery value due to foreign currency fluctuations.
2. Higher rate of depreciation on canteen buildings.
3. Depreciation and investment allowance on capitalized deferred interest under the IDBI Loan Scheme.
4. Weighted deduction under section 35B on interest on packing credit and export guarantee commission.
5. Deduction of excess available surplus carried over from the previous year under the Payment of Bonus Act.

Issue-wise Detailed Analysis:

1. Depreciation and Extra Shift Allowance on Increased Machinery Value Due to Foreign Currency Fluctuations:
The core issue was whether the assessee is entitled to depreciation and extra shift allowance on the increased value of machinery due to foreign currency fluctuations. The assessee had purchased machinery from a foreign country and paid in instalments, leading to increased costs due to currency fluctuations. The Revenue contended that the value at the time of purchase should be the capital value, unaffected by subsequent currency changes. However, the court referred to sections 32, 43(1), 43(2), 43(6), and 43A of the Income-tax Act, which collectively suggest that the increased amount due to currency fluctuations is considered capital investment. This view was supported by the precedent set in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374. Therefore, the court concluded in favor of the assessee, allowing depreciation on the increased value.

2. Higher Rate of Depreciation on Canteen Buildings:
The issue was whether the assessee could claim a higher depreciation rate of five percent on canteen buildings. The court referenced CIT v. Motor Industries Co. Ltd. [1986] 158 ITR 734, which held that canteen buildings, integral to the factory's functioning, qualify for higher depreciation. This was further supported by a recent judgment in CIT v. Motor Industries Co. Ltd. (No. 2) [1998] 229 ITR 137 (Kar). As such, the court affirmed that canteen buildings are part of the factory, entitling the assessee to the higher depreciation rate, ruling in favor of the assessee.

3. Depreciation and Investment Allowance on Capitalized Deferred Interest under the IDBI Loan Scheme:
The court examined whether the assessee could claim depreciation and investment allowance on the capitalized amount of deferred interest payable under the IDBI Loan Scheme. The assessee had borrowed funds from the Industrial Development Bank of India and paid for machinery through negotiable instruments. The court referenced CIT v. Widia (India) Ltd. [1992] 193 ITR 475, which supported the assessee's claim. Consequently, the court ruled in favor of the assessee, allowing the claim for depreciation and investment allowance on the capitalized deferred interest.

4. Weighted Deduction under Section 35B on Interest on Packing Credit and Export Guarantee Commission:
The issue was whether the assessee was entitled to a weighted deduction under section 35B for interest on packing credit and export guarantee commission. The court referred to CIT v. J. B. Advani and Co. (Mysore) (Pvt.) Ltd. [1987] 163 ITR 638, which allowed deductions for payments to the Export Credit Guarantee Corporation but did not address packing credit interest. The court concluded that the assessee could claim a weighted deduction for payments to the Export Credit Guarantee Corporation but not for packing credit interest, as it was not covered under section 35B. Thus, the court partially ruled in favor of the assessee.

5. Deduction of Excess Available Surplus Carried Over from the Previous Year under the Payment of Bonus Act:
The court considered whether the excess available surplus carried over from the previous year under the Payment of Bonus Act could be treated as an outgoing and eligible for deduction. The court referenced CIT v. Widia (India) Ltd. [1992] 193 ITR 475, which held that such surplus could not be treated as an outgoing since it was not distributed as a bonus in the current year. Therefore, the court ruled against the assessee, denying the deduction for the carried-over surplus.

Conclusion:
The court delivered a comprehensive judgment addressing each issue, ruling in favor of the assessee on issues 1, 2, and 3, partially in favor on issue 4, and against the assessee on issue 5. The detailed analysis and application of relevant sections and precedents provided a thorough resolution to the complex tax matters involved.

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