1997 (8) TMI 70 - HC - Income Tax

Actual Cost, Applied To, Business Expenditure, Capital Expenditure, Capital Or Revenue Expenditure, Company Surtax, Contingent Liabilities, Development Allowance, Expenditure Incurred, Factory Building, Fluctuation In Rate, Foreign Exchange, Ground Rent, Higher Rate, Initial Depreciation, Property Tax, Rate Of Depreciation, Weighted Deduction

Issues Involved:
1. Higher depreciation on canteen building.
2. Provision for salary and wages payable for non-utilised leave.
3. Expenses incurred in connection with the issue of rights shares.
4. Depreciation on increase in the value of assets due to fluctuation in exchange rate.
5. Jurisdiction of the Commissioner of Income-tax (Appeals) in entertaining additional claims for weighted deduction under section 35B.
6. Depreciation on roads, culverts, and drainages around the factory.
7. Ground rent, repairs, municipal tax, and depreciation on employee residential quarters as 'perquisite' under section 40A(5).
8. Depreciation on pipelines and sanitary fittings treating them as plant and machinery.
9. Extra shift allowance on storage tanks.
10. Initial depreciation under section 32(1)(vi).
11. Surtax payable as a proper deduction.
12. Weighted deduction under section 35B for insurance premium paid to Export Credit Guarantee Corporation Limited.

Detailed Analysis:

Re: Question No. (1)
The issue was whether the assessee was entitled to higher depreciation on canteen buildings. The Tribunal upheld the assessee's claim, and this court, following its earlier decision in CIT v. Motor Industries Co. Ltd. [1986] 158 ITR 734, answered the question in the affirmative, against the Revenue and in favor of the assessee.

Re: Question No. (2)
This issue pertained to the provision for salary and wages payable for non-utilised leave amounting to Rs. 75,51,000. The Tribunal upheld the assessee's claim, but the court, referencing decisions in CIT v. Hindustan Aeronautics Ltd. [1988] 174 ITR 340 and CIT v. Bharat Earth Movers Ltd. [1995] 211 ITR 515, determined that such a provision was a contingent liability and not an admissible deduction. The question was answered in the negative, against the assessee and in favor of the Revenue.

Re: Question No. (3)
The issue involved whether the expenses incurred in connection with the issue of rights shares constituted revenue expenditure. This court, following its decision in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374, held it to be a capital expenditure. The question was answered in the negative, against the assessee and in favor of the Revenue.

Re: Question No. (4)
The question related to depreciation on the increased value of assets due to exchange rate fluctuations. The Tribunal's decision was upheld by this court, referencing CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 and CIT v. Arvind Mills Ltd. [1992] 193 ITR 255. The question was answered in the affirmative, against the Revenue and in favor of the assessee.

Re: Question No. (5)
This issue concerned the jurisdiction of the Commissioner of Income-tax (Appeals) in entertaining additional claims for weighted deduction under section 35B. The court held that the Commissioner was justified in admitting the claim as the necessary material was available on record, referencing Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688. The question was answered in the affirmative, against the Revenue and in favor of the assessee.

Re: Question No. (6)
The question involved depreciation on roads, culverts, and drains within the factory premises. The court, referencing CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149, held that such structures are necessary adjuncts to the factory buildings and eligible for depreciation. The question was answered in the affirmative, against the Revenue and in favor of the assessee.

Re: Question No. (7)
The issue was whether ground rent, repairs, municipal tax, and depreciation on employee residential quarters could be treated as 'perquisite' under section 40A(5). The court, following CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374, held that such expenses are not perquisites. The question was answered in the affirmative, against the Revenue and in favor of the assessee, with a clarification on repairs.

Re: Questions No. (8) and (9)
These questions related to whether pipelines, sanitary fittings, and storage tanks should be treated as plant and machinery for depreciation and extra shift allowance. The court, referencing CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374, held that the functional test should be applied to determine if these items qualify as plant. The questions were answered in the negative, against the assessee, and the Tribunal was directed to re-examine the matter.

Re: Question No. (10)
The issue was whether the assessee was entitled to initial depreciation under section 32(1)(vi) for machinery used in manufacturing spark plugs and fuel injection equipment. The court held that the Ninth Schedule does not include components of industrial and agricultural machinery. The question was answered in the affirmative, against the assessee and in favor of the Revenue.

Re: Question No. (11)
This question involved whether surtax payable could be deducted in computing total income. The court, referencing CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936, held that surtax is an additional tax on profits and not deductible. The question was answered in the affirmative, against the assessee and in favor of the Revenue.

Re: Question No. (12)
The issue was whether the assessee was entitled to weighted deduction under section 35B for insurance premium paid to Export Credit Guarantee Corporation Limited. The court, referencing CIT v. J. B. Advani and Co. (Mysore) Pvt. Ltd. [1987] 163 ITR 638, held that such premium qualifies for weighted deduction. The question was answered in the negative, against the Revenue and in favor of the assessee.

Conclusion:
(i) Questions Nos. 1, 4, 5, 6, and 7 are answered in the affirmative, against the Revenue and in favor of the assessee (with a clarification for question No. 7).
(ii) Questions Nos. 2, 3, 8, and 9 are answered in the negative, against the assessee and in favor of the Revenue, with the Tribunal directed to re-examine questions Nos. 8 and 9.
(iii) Questions Nos. 10 and 11 are answered in the affirmative, against the assessee and in favor of the Revenue.
(iv) Question No. 12 is answered in the negative, against the Revenue and in favor of the assessee.

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