1983 (6) TMI 1 - HC - Income Tax

Computation Of Capital Depreciation And Development Rebate Income Tax Act Income Tax Rules New Industrial Undertaking Plant And Machinery Special Deduction

Issues Involved:
1. Depreciation on enhanced cost of plant and machinery, factory buildings, and housing colony buildings.
2. Development rebate on enhanced cost of plant and machinery.
3. Deductibility of provision for taxation under rule 19A(3) of the Income-tax Rules.
4. Granting of extra shift allowance on plant and machinery.
5. Treatment of legal expenses and stamp fees as an asset for computation of capital under section 80J.
6. Deductibility of expenditure due to fluctuations in exchange rates during loan repayment.
7. Allowability of loss due to fluctuations in exchange rates during loan repayment.

Issue-wise Detailed Analysis:

1. Depreciation on Enhanced Cost of Plant and Machinery, Factory Buildings, and Housing Colony Buildings:
The Tribunal directed granting depreciation on the enhanced cost of plant and machinery, factory buildings, and housing colony buildings, which included expenditures on land development, roads, and fencing. The assessee had acquired leasehold rights and incurred significant expenses for land development and fencing to make the site suitable for erecting its plant and buildings. The Income-tax Officer initially disallowed the depreciation claim, arguing that these expenditures were related to the land taken on lease, not directly to the plant and machinery or buildings. However, the Appellate Assistant Commissioner allowed the claim, reasoning that such expenditures were integral to the factory building and thus eligible for depreciation. The Tribunal upheld this decision, agreeing with the Appellate Assistant Commissioner. The High Court found no infirmity in this reasoning, referencing several precedents, and affirmed the decision in favor of the assessee.

2. Development Rebate on Enhanced Cost of Plant and Machinery:
The Tribunal also directed granting a development rebate on the enhanced cost of plant and machinery. The Income-tax Officer had disallowed this, but the Appellate Assistant Commissioner accepted the claim, considering the expenditure on land development as part of the cost of the plant and machinery. The Tribunal upheld this view, and the High Court agreed, citing relevant case law that supported the inclusion of such expenditures in the cost basis for development rebate purposes.

3. Deductibility of Provision for Taxation under Rule 19A(3):
The Tribunal held that the provision for taxation made by the assessee and standing at Rs. 2,69,000 as on January 1, 1968, could not be considered a deductible debt within the meaning of rule 19A(3) while computing relief under section 80J. The High Court agreed with this interpretation, referencing the precedent set in CIT v. Boots Pure Drug Co. (I.) Ltd., and answered the question in favor of the assessee.

4. Granting of Extra Shift Allowance on Plant and Machinery:
The Tribunal ruled that the Income-tax Officer could not deny the assessee extra shift allowance on its plant and machinery. Both parties agreed that the precedent set in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. applied, and the High Court answered the question in favor of the assessee.

5. Treatment of Legal Expenses and Stamp Fees as an Asset for Computation of Capital under Section 80J:
The Tribunal held that a sum of Rs. 50,000 representing legal expenses and stamp fees should be treated as an asset for the purpose of computing the assessee's capital within the meaning of section 80J. However, the High Court found that the facts on record were insufficient to form a considered opinion and declined to answer this question.

6. Deductibility of Expenditure Due to Fluctuations in Exchange Rates During Loan Repayment:
The Tribunal allowed a sum of Rs. 16,972 paid by the assessee on account of fluctuations in exchange rates during loan repayment as a deductible expense. The High Court noted the lack of detailed facts in the records and declined to answer this question.

7. Allowability of Loss Due to Fluctuations in Exchange Rates During Loan Repayment:
The Tribunal allowed a loss of Rs. 30,000 sustained by the assessee due to exchange rate fluctuations during loan repayment. Similar to the previous issue, the High Court found the records insufficient and declined to answer this question.

Conclusion:
The High Court upheld the Tribunal's decisions on depreciation and development rebate, provision for taxation, and extra shift allowance, answering these questions in favor of the assessee. However, due to insufficient facts on record, the Court declined to answer questions related to legal expenses, stamp fees, and exchange rate fluctuations. No order as to costs was made.

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