1995 (12) TMI 15 - HC - Income Tax

Accounting Year, Assessment Year, Attributable To, Business Expenditure, Capital Expenditure, Development Allowance, Expenditure Incurred, Foreign Enterprise, Scientific Research, Special Deduction, Travel Expenditure, Weighted Deduction, Written Down Value

Issues Involved:

1. Deduction under section 80-O for assessment years 1972-73 and 1973-74.
2. Deduction for legal expenses incurred in Pakistan for assessment year 1972-73.
3. Development rebate under section 33(6) on the cost of water works for assessment year 1973-74.
4. Deduction as revenue expenditure for travel expenses incurred by Shri Joshi for assessment year 1973-74.
5. Deduction as revenue expenditure for travel expenses incurred by S/Shri S. R. Vakil and R. M. Khatau for assessment year 1973-74.
6. Relief under section 35B(1)(b)(iii) for travel expenses incurred in India for assessment year 1973-74.
7. Depreciation allowance on assets purchased for scientific research used in assessment years 1972-73 and 1973-74.

Issue-wise Detailed Analysis:

1. Deduction under section 80-O for assessment years 1972-73 and 1973-74:

The controversy revolves around the rejection of the assessee's claim for deduction under section 80-O of the Income-tax Act, 1961, for sums received from Kuwait Cement Company. The Tribunal observed that the receipts were from the execution of a turnkey project and did not qualify as royalty, commission, fees, or similar payments for the use of technical knowledge or services rendered outside India. The Tribunal held that the approval of the agreement by the Government did not suffice for deduction under section 80-O. However, the court noted that the contract required specialized knowledge and technical services, and the absence of specific bifurcation in the contract should not preclude the deduction. The matter was remanded to the Tribunal for reconsideration in light of the Supreme Court's decisions in Continental Construction Ltd. v. CIT and Prakash Cotton Mills P. Ltd. v. CIT, allowing the assessee to provide additional evidence.

2. Deduction for legal expenses incurred in Pakistan for assessment year 1972-73:

The assessee claimed deduction for legal expenses incurred in Pakistan related to the sale of its factories to the Government of West Pakistan. The Tribunal rejected the claim, stating that the expenses were not incurred for the purpose of the business. The court upheld this view, noting that the expenses related to a business venture sold in 1965 and were not connected to the assessee's ongoing business operations. The court referenced the Supreme Court decision in L. M. Chhabda and Sons v. CIT, emphasizing that expenses related to a closed business cannot be deducted against income from other businesses.

3. Development rebate under section 33(6) on the cost of water works for assessment year 1973-74:

The assessee claimed development rebate on the total cost of additions to water works, including civil works. The Income-tax Officer allowed the rebate only on the cost of pumps and pipes, excluding civil works. The Tribunal upheld this decision. However, the court, following its decision in CIT v. Mazagaon Dock Ltd., held that civil works were integral to the water works and should be considered part of the plant. Therefore, the entire expenditure, including civil works, qualified for development rebate. The court answered the question in favor of the assessee.

4. Deduction as revenue expenditure for travel expenses incurred by Shri Joshi for assessment year 1973-74:

The assessee did not press this issue, and the court returned the question unanswered due to the relatively small amount involved and the long lapse of time.

5. Deduction as revenue expenditure for travel expenses incurred by S/Shri S. R. Vakil and R. M. Khatau for assessment year 1973-74:

Similar to the previous issue, the assessee did not press this issue, and the court returned the question unanswered.

6. Relief under section 35B(1)(b)(iii) for travel expenses incurred in India for assessment year 1973-74:

The court referenced its decision in M. H. Daryani v. CIT, which covered the controversy in favor of the Revenue. The court answered the question in the negative and in favor of the Revenue.

7. Depreciation allowance on assets purchased for scientific research used in assessment years 1972-73 and 1973-74:

The court referenced the Supreme Court decision in Escorts Ltd. v. Union of India, which concluded the issue in favor of the Revenue. The court answered the question in the negative and in favor of the Revenue.

Conclusion:

The reference was disposed of with no order as to costs, with specific issues remanded for reconsideration or answered in favor of the Revenue or the assessee as detailed above.

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