1993 (9) TMI 318 - HC - Income Tax

Development Rebate On Fully Depreciated Assets, Export Market Development Business, Surtax Is Not Business Expenditure, Wholly And Exclusively

Summary

Issues:
1. Deductibility of expenditure on foreign tours of managing director
2. Admissibility of surtax liability as deduction
3. Admissibility of development rebate on rolling mill rolls
4. Availability of benefit under section 35B for export expenditure
5. Recomputation of disallowable expenditure for perquisites under section 40(c)

Analysis:

Issue 1: Deductibility of expenditure on foreign tours of managing director
The court considered whether the expenditure incurred on foreign tours of the managing director was deductible under section 37(1) of the Income-tax Act. The Revenue argued it was capital expenditure due to the purpose of the visit being related to inspecting capital equipment. However, the court held that the visit was for the business purpose, not personal, and thus, was revenue expenditure. The court emphasized the wide scope of "for the purpose of the business" under section 37, citing relevant Supreme Court decisions. It concluded that the expenditure was not of a capital nature and should be allowed as a deduction under section 37(1).

Issue 3: Admissibility of development rebate on rolling mill rolls
The court examined whether the assessee was entitled to development rebate on rolling mill rolls purchased for business use. It clarified that sections 32 and 33 are independent provisions, and the allowance of depreciation does not affect the eligibility for development rebate. The court emphasized that development rebate is not contingent on the depreciation rate. It held that the assessee should not be denied development rebate solely based on the depreciation rate being 100%. The court ruled in favor of the assessee, stating that the Tribunal was not justified in disallowing the development rebate on the rolling mill rolls.

The judgment addressed specific issues related to the deduction of expenditure on foreign tours, the admissibility of development rebate, and provided detailed reasoning based on relevant legal provisions and precedents. The court's analysis focused on the distinction between revenue and capital expenditures, emphasizing the business purpose of the expenditure in question. The judgment highlighted the independent nature of provisions related to depreciation and development rebate, ensuring a comprehensive examination of each issue raised in the case.