1995 (10) TMI 9 - HC - Income Tax

Authorised Capital Business Expenditure Capital Expenditure Capital Gains Capital Or Revenue Expenditure Computation Of Capital Conveyance Allowance Cost Of Acquisition Of Capital Asset Fair Market Value Fluctuation In Rate Foreign Exchange House Rent Allowance Insurance Premia Question Of Fact Taxing Statutes Value As On 1-1-1954

Issues Involved:
1. Nature of expenditures as perquisites under section 40A(5) of the Income-tax Act, 1961.
2. Computation of remuneration for disallowance under section 40A(5).
3. Gratuity as remuneration under section 40A(5).
4. Fees paid to the Registrar of Companies for increasing authorized capital.
5. Bank guarantee commission as revenue expenditure.
6. Excess payment on loan repayment due to exchange rate difference.
7. Option to substitute fair market value for capital gains computation.

Detailed Analysis:

Issue 1: Nature of Expenditures as Perquisites under Section 40A(5)
The Tribunal concluded that expenditures on gas, electricity, motor car, personal accident insurance, and telephone expenses were not perquisites for disallowance under section 40A(5). The court affirmed this, stating that expenses incurred by the company for its business purposes cannot be considered perquisites resulting in direct or indirect benefits to the employee.

Issue 2: Computation of Remuneration for Disallowance under Section 40A(5)
The court noted that the Income-tax Officer incorrectly computed cumulative disallowance for multiple employees rather than individually. The Commissioner of Income-tax (Appeals) found no excess in the amounts paid to employees, which the Tribunal upheld. Thus, the question of whether certain items are perquisites was deemed academic and not addressed.

Issue 3: Gratuity as Remuneration under Section 40A(5)
The Tribunal initially found that gratuity payments were subject to section 40A(5). However, the court clarified that payments from an approved gratuity fund should not be included in computing the ceiling for allowable expenditure. Gratuity is part of salary under section 17(1)(iii) and not a perquisite under section 17(2). Therefore, contributions to an approved gratuity fund are not to be included in the computation for section 40A(5).

Issue 4: Fees Paid to Registrar of Companies for Increasing Authorized Capital
The court affirmed that fees paid to the Registrar of Companies for increasing authorized capital are capital expenditures. This decision aligns with previous judgments, including Alembic Glass Industries Ltd. v. CIT and Ahmedabad Manufacturing and Calico Pvt. Ltd. v. CIT.

Issue 5: Bank Guarantee Commission as Revenue Expenditure
The court held that bank guarantee commission for purchasing machinery is a capital expenditure, not a revenue expenditure. This decision follows the precedent set in CIT v. Bharat Suryodaya Mills Co. Ltd. and CIT v. Vallabh Glass Works Ltd.

Issue 6: Excess Payment on Loan Repayment Due to Exchange Rate Difference
The court ruled that increased liability due to exchange rate fluctuations should be adjusted to the acquisition cost of the asset, making it a capital expense. This conclusion is supported by New India Industries Ltd. v. CIT and CIT v. Hindustan Aluminium Corporation Ltd.

Issue 7: Option to Substitute Fair Market Value for Capital Gains Computation
The court upheld the decision that the assessee could not substitute the fair market value as of January 1, 1954, for depreciable assets acquired before that date. The cost of acquisition should be the written down value as defined in section 43. This interpretation follows the precedent set in Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. v. CIT and other similar cases.

Conclusion:
The court provided comprehensive answers to each issue, affirming the Tribunal's findings in most cases and clarifying the application of various sections of the Income-tax Act, 1961. The reference was disposed of with no order as to costs.

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