1992 (9) TMI 62 - HC - Income Tax

Summary

Issues Involved: The judgment involves questions related to the allowability of certain expenditures as revenue or capital under the Income-tax Act, 1961.

Question No. 1 - Construction of New Wall:
The court considered whether the expenditure of Rs. 23,782 incurred by the assessee on construction of a new wall was allowable as revenue expenditure. The assessee had to demolish and rebuild a wall due to municipal requirements for road widening. The court held that the expenditure was in the nature of repairs rather than creating a new capital asset, necessary for running the business, and thus allowable as revenue expenditure. The answer to Question No. 1 was in favor of the assessee and against the Revenue.

Question No. 2 - Payment of Gratuity:
The issue was whether the provision made for payment of gratuity to employees was allowable as a deduction. The court referred to the conditions laid down in section 40A(7) of the Income-tax Act and a Supreme Court decision, stating that gratuity deduction must fulfill these conditions. As the conditions were not met in this case, the deduction for gratuity provision was disallowed. The answer to Question No. 2 was against the assessee and in favor of the Revenue.

Question No. 3 - Claim of Bonus or Trade Loss:
The question was whether a payment of Rs. 2,41,715 to employees constituted a bonus or trade loss and was allowable as a deduction. The Tribunal erred in applying an inapplicable provision, leading to the disallowance of the claim. The court highlighted the correct proviso applicable and directed the Tribunal to reconsider the claim in accordance with the law. The answer to Question No. 3 was in favor of the assessee and against the Revenue.

Question No. 4 - Bank Guarantee Commission:
The court examined whether the bank guarantee commission paid for machinery purchase could be treated as revenue expenditure. Referring to a previous court decision, it was established that such expenditure, integral to the cost of acquiring a capital asset, should be considered capital expenditure. Consequently, the bank guarantee commission was not allowed as revenue expenditure. The answer to Question No. 4 was against the assessee and in favor of the Revenue.

Conclusion:
The court's decision resulted in Question No. 1 and Question No. 3 being answered in favor of the assessee, while Question No. 2 and Question No. 4 were decided in favor of the Revenue. The Tribunal was directed to reconsider the claim related to bonus or trade loss based on the correct applicable proviso. No costs were awarded in the judgment.