1988 (12) TMI 337 - HC - Income Tax

Summary

Issues:
1. Whether house rent allowance paid to employees amounts to a perquisite for computing disallowance under section 40(a)(v) of the Income-tax Act, 1961?
2. Whether the expenditure incurred in transferring plant and machinery from one location to another should be treated as a revenue expenditure or a capital expenditure?

Analysis:

Issue 1:
The first question pertains to whether house rent allowance paid to employees constitutes a perquisite for computing disallowance under section 40(a)(v) of the Income-tax Act, 1961. The court, guided by its previous judgments in CIT v. Mercantile Bank Ltd. and CIT v. Indokem (P.) Ltd., concluded that the house rent allowance does not amount to a perquisite for the purpose of computing disallowance under the specified section. Therefore, the first question was answered in the affirmative and in favor of the assessee.

Issue 2:
Regarding the second question on the treatment of expenditure incurred in transferring plant and machinery from one location to another, the court delved into the nature of the expenditure. The department argued that the expenditure was of a capital nature based on the Supreme Court decision in Sitalpur Sugar Works Ltd. v. CIT, supported by judgments from Patna High Court and Madras High Court. Conversely, the assessee contended that without a finding from the Tribunal on whether the shifting of plant and machinery provided an enduring advantage, the capital nature argument did not apply. The assessee relied on the Supreme Court decision in CIT v. Associated Cement Co. Ltd. and the Calcutta High Court decision in CIT v. Karanpura Development Co. Ltd. for supporting the revenue expenditure treatment.

The court analyzed the situation and found that the shifting of plant and machinery to the assessee's own premises indeed conferred an enduring advantage, aligning with the principles in the Sitalpur Sugar Works Ltd. case. Considering the absence of definitive rules and the necessity to evaluate each case's facts individually, the court ruled that the expenditure was of capital nature. Consequently, the Tribunal's decision to allow the expenditure as revenue expenditure was deemed incorrect. Thus, the second question was answered in the negative and in favor of the revenue.

In conclusion, the court's judgment clarified the treatment of house rent allowance and expenditure on plant and machinery transfer, providing a nuanced analysis based on established legal precedents and the specific circumstances of the case.