1991 (12) TMI 4 - HC - Income Tax

Balancing Allowance Business Expenditure Capital Or Revenue Expenditure Income Tax Act Income Tax Proceedings Salary To Employee Special Deduction Surtax Assessment

Issues Involved:
1. Disallowance of salary paid to an employee for the period spent in a foreign country under section 40A(5) of the Income-tax Act, 1961.
2. Classification of foreign travel expenses as capital expenditure.
3. Entitlement to weighted deduction for freight charges and export expenses under section 35B.
4. Allowability of legal fees exceeding Rs. 5,000 under section 80VV.
5. Entitlement to write off terminal loss under section 32(1)(iii).

Issue-wise Detailed Analysis:

1. Disallowance of Salary Paid to an Employee for Foreign Tour Period:
The first issue pertains to whether the salary paid to an employee during a foreign tour should be excluded from disallowance under section 40A(5). The Tribunal upheld the Income-tax Officer's decision that the salary paid to the employee during the foreign tour cannot be excluded from disallowance under section 40A(5). The court noted that the employee was employed in India and merely traveled abroad for business purposes. Therefore, the salary paid during the foreign tour period could not be considered as employment outside India. The court concluded that the disallowance should not exclude the salary paid during the foreign tour, affirming the Tribunal's decision.

2. Classification of Foreign Travel Expenses as Capital Expenditure:
The second issue concerns whether foreign travel expenses incurred to explore setting up a joint venture unit in Malaysia should be classified as capital expenditure. The Tribunal agreed with the Income-tax Officer and the Commissioner (Appeals) that the expenses were capital in nature. The court distinguished this case from the Alembic Glass Industries Ltd. case, noting that the proposed joint venture in Malaysia was not an expansion of the assessee's existing business but an independent unit. The court held that the expenses were capital in nature and not deductible as business expenditure under section 37(1).

3. Entitlement to Weighted Deduction for Freight Charges and Export Expenses:
The third issue was not pressed by the assessee, and therefore, the court did not address it.

4. Allowability of Legal Fees Exceeding Rs. 5,000 under Section 80VV:
The fourth issue pertains to whether legal fees exceeding Rs. 5,000 were allowable under section 80VV. The Tribunal upheld the Commissioner's decision that Rs. 5,000 paid for surtax assessment and Rs. 2,500 paid to C.C. Chokshi and Co. for general advice were not hit by section 80VV. The court noted that section 80VV applies only to expenses incurred in proceedings before income-tax authorities or the Tribunal relating to the determination of liability under the Income-tax Act. Therefore, the fees paid for surtax assessment and general advice were allowable, and the Tribunal's decision was affirmed.

5. Entitlement to Write Off Terminal Loss under Section 32(1)(iii):
The fifth issue concerns the assessee's entitlement to write off terminal loss under section 32(1)(iii). The Tribunal upheld the Commissioner's decision that the assessee could claim terminal loss for discarded machinery. The court noted that section 32(1)(iii) does not require the machinery to be sold to claim terminal loss. Since the machinery was discarded and its value estimated, the assessee was entitled to claim the loss. The Tribunal's decision was affirmed.

Conclusion:
The court affirmed the Tribunal's decisions on all issues, ruling against the assessee on the first two issues and in favor of the assessee on the fourth and fifth issues. The third issue was not addressed as it was not pressed by the assessee. The references were answered accordingly with no order as to costs.

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