2003 (9) TMI 798 - HC - Income Tax

Summary

Issues:
1. Deduction of unpaid bottling fee under section 43B of the Income-tax Act, 1961.
2. Allowance of depreciation on research and development assets related to a closed business division.

Analysis:

Issue 1:
The first issue revolves around the deduction of unpaid bottling fee under section 43B of the Income-tax Act, 1961. The appellant contended that the bottling fee should be considered as actual payment upon furnishing a bank guarantee, even if not paid before the due date of filing the return. The Tribunal favored the appellant's argument based on the bank guarantee, deeming it as actual payment. However, the High Court examined whether the bottling fee falls under the purview of section 43B. The Court held that the bottling fee is not a fee in the technical sense but a consideration for parting with the exclusive privilege of dealing in potable liquor. Therefore, the Court decided in favor of the appellant, allowing the deduction as an allowable revenue expenditure if accounts are maintained on a mercantile basis.

Issue 2:
The second issue concerns the allowance of depreciation on research and development (R&D) assets related to a closed business division. The Assessing Officer disallowed the claim for depreciation on the basis that the fast food division, to which the R&D assets were linked, had been closed. The appellant argued that the R&D assets were not solely related to the closed division but also served the liquor business, which was operational. Additionally, the appellant highlighted changes in the scheme of depreciation under the Taxation Laws Act, 1986, emphasizing that the R&D assets formed part of block assets and were used in the operational business. The Court agreed with the appellant, stating that the R&D division was active and providing services to other operational businesses of the assessee. Therefore, the Court upheld the Tribunal's decision to allow depreciation on the R&D assets as part of the block assets.

In conclusion, the High Court dismissed the appeal, upholding the decisions in favor of the appellant on both issues. No costs were awarded in this matter.