1987 (1) TMI 490 - AT - Income Tax

Summary

Issues Involved:
1. Claim of investment allowance on 'electrical installations'.
2. Claim for additional depreciation on 'electrical installations'.
3. Disallowance under section 40A(5) regarding perquisites to the 'technical adviser'.
4. Disallowance of vehicle expenses.

Issue-wise Detailed Analysis:

1. Claim of Investment Allowance on 'Electrical Installations':
The primary issue revolves around whether 'electrical installations' qualify for investment allowance under section 32A of the Income-tax Act, 1961. The Income Tax Officer (ITO) disallowed the claim, asserting that 'electrical installations' do not fall under the definition of 'plant' as per section 43 of the Act. The Commissioner (Appeals) upheld this view without detailed consideration of the assessee's arguments or relevant judicial precedents. The assessee argued that 'electrical installations' are integral to the manufacturing process of mischmetal, used in flints for lighters, and should be treated as 'plant'. The Tribunal observed that the revenue's interpretation was narrow and that the definition of 'plant' should be broadly construed, including items integral to the manufacturing process. The Tribunal concluded that 'electrical installations' in this case form part of 'plant and machinery' and allowed the investment allowance claim, subject to legal conditions.

2. Claim for Additional Depreciation on 'Electrical Installations':
The second issue pertains to the claim for additional depreciation on 'electrical installations'. During the hearing, the assessee's counsel chose not to press this claim. Consequently, the Tribunal rejected this common ground for all three years under appeal.

3. Disallowance under Section 40A(5) Regarding Perquisites to the 'Technical Adviser':
The third issue involves the disallowance under section 40A(5) related to perquisites provided to the 'technical adviser'. The ITO disallowed amounts of Rs. 437, Rs. 855, and Rs. 2,809 for three years, respectively, on the grounds that perquisites exceeded statutory limits. The assessee contended that 'royalty' paid to the technical adviser should be considered part of his salary, which would bring the perquisites within statutory limits. The Tribunal noted that while the definition of 'salary' under section 17 is broad, there was no evidence on record to confirm if 'royalty' was part of the employment terms. The Tribunal remanded the issue back to the ITO for all three years to ascertain the facts and determine if 'royalty' formed part of the technical adviser's salary.

4. Disallowance of Vehicle Expenses:
The final issue concerns the disallowance of vehicle expenses amounting to Rs. 615 for the assessment year 1981-82. The ITO disallowed 15% of the total claim of Rs. 4,102, which was confirmed by the Commissioner (Appeals). The assessee argued that the expenses were incurred for employees' scooters used for office purposes and did not include the director's personal car expenses. The Tribunal accepted the assessee's contention, noting no such disallowance was made in previous assessment years. Consequently, the Tribunal allowed the claim for vehicle expenses.

Conclusion:
The appeals were partly allowed, with the Tribunal granting the investment allowance on 'electrical installations', rejecting the additional depreciation claim, remanding the section 40A(5) issue for further examination, and allowing the vehicle expenses claim.