1992 (8) TMI 41 - HC - Income Tax

Business Expenditure, Company, Disallowance, New Industrial Undertaking, Property, Special Deduction

Issues Involved:
1. Whether bonus payments in excess of 20% of salary are considered benefits, amenities, or perquisites under sections 40(c)(iii) and 40(a)(v) of the Income-tax Act, 1961.
2. Whether the loan agreement provided for repayment over a period of not less than seven years for the purposes of section 80J.
3. Whether the expenditure on listing fees for shares is deductible as business expenditure.
4. Whether rental income from a factory building should be classified under "Income from house property" or "Profits and gains of business."
5. Whether depreciation is allowable on the factory building rented out.

Detailed Analysis:

1. Bonus Payments as Benefits, Amenities, or Perquisites:
For the assessment years 1968-69 to 1971-72, the main issue was whether bonus payments exceeding 20% of the salary to employees earning more than Rs. 7,500 annually could be considered as benefits, amenities, or perquisites under sections 40(c)(iii) and 40(a)(v) of the Income-tax Act, 1961. The Income-tax Officer disallowed these payments, but the Appellate Assistant Commissioner and the Tribunal ruled in favor of the assessee, stating that the bonus was part of remuneration and not a perquisite. The court upheld this view, emphasizing that the legislative intent behind the amendments to section 40(c)(iii) and the introduction of section 40(a)(v) was to exclude cash emoluments from the definitions of benefits, amenities, or perquisites. The court relied on several precedents, including CIT v. Kanan Devan Hills Produce Co. Ltd., CIT v. Mysore Commercial Union Ltd., and CIT v. Indokem Pvt. Ltd., which supported the view that cash payments like bonuses do not fall under perquisites. Thus, the court answered questions 1 and 3 in the affirmative, favoring the assessee.

2. Loan Agreement Repayment Period:
The second issue pertained to whether a loan of Rs. 25 lakhs taken by the assessee was repayable over a period of not less than seven years, which is a requirement under section 80J. The Income-tax Officer excluded this loan from the capital computation, but the Tribunal followed a previous decision in New India Industries Ltd. v. CIT, which concluded that the loan agreement did provide for a repayment period of not less than seven years. The court upheld the Tribunal's decision, answering question 2 in the affirmative, in favor of the assessee.

3. Expenditure on Listing Fees:
For the assessment years 1970-71 and 1971-72, the assessee claimed a deduction for listing fees paid to the stock exchange. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal disallowed this deduction, stating that it was not incurred wholly and exclusively for business purposes. However, the court noted that a relevant circular from the Central Board of Direct Taxes, which considered such expenses as business expenditure, was not brought to the attention of the lower authorities. Consequently, the court declined to answer question 4 and suggested that the matter be re-examined in light of the circular.

4. Classification of Rental Income:
The court examined whether the rental income from a factory building leased to M/s. Agfa Gevaert India Ltd. should be classified under "Income from house property" or "Profits and gains of business." The Tribunal had ruled that it should be classified as "Income from house property," and the court agreed. The court emphasized that the building was not used as a commercial asset by the assessee but was leased out to generate rental income, which aligns with the classification under "Income from house property." The court referred to several precedents, including CEPT v. Shri Lakshmi Silk Mills Ltd. and CIT v. National Mills Co. Ltd., to support its decision. Thus, the court answered questions 5 and 6 in the affirmative, favoring the Revenue.

5. Depreciation on Rented Factory Building:
Finally, the court addressed whether the assessee was entitled to claim depreciation on the factory building rented out. The court ruled that since the building was not used for the assessee's business, it did not qualify for depreciation under section 32. Even if it were considered a business asset, section 38(2) would restrict the depreciation to a fair proportionate part, which the Income-tax Officer had already determined. The court found that the Tribunal's decision was correct and did not support the assessee's claim for depreciation. Thus, the court answered questions 5 and 6 in the affirmative, in favor of the Revenue.

Conclusion:
The court ruled in favor of the assessee on the issues of bonus payments and loan agreement repayment period but favored the Revenue on the issues of listing fees expenditure, classification of rental income, and depreciation on the rented factory building. The court declined to answer the question regarding listing fees expenditure and suggested re-examination in light of the relevant circular.

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