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2012 (9) TMI 628 - HC - Income TaxRate of Depreciation u/s. 32 - should not be at the rates prescribed by the income-tax Rules, as amended with effect from 2.4.1983 - Held that - As decided in Karimtharuvi Tea Estate Ltd. v. State of Kerala 1965 (12) TMI 35 - SUPREME COURT any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. Therefore, whatever is the rate of tax as on April 1, of the financial year 1983-84 is applicable to the assessment year 1983-84 though the assessment is made subsequent to the amendment. Since the higher rates of depreciation have been brought into force on April 2, 1983, they cannot be made applicable to the assessee for the assessment year 1983-84 - assessee s demand for higher depreciation is quashed - against the assessee. Disallowance of expenditure - Rent to be treated as capital expenditure - Held that - The Tribunal, after analyzing the documents, held that the arrangement between the parties conferred the benefit of ownership upon the assessee without the actual sale during the current accounting year. The Tribunal observed that the assessee had the right of user of the property for a long period and also obtained a future right to exercise the option to purchase the property after five years from the date of commencement of the lease. The Tribunal held that the assessee had acquired a capital asset and the expenditure had to be treated as capital expenditure - against assessee. Disallowance of depreciation - payment which was treated as capital expenditure for acquiring a capital asset - Held that - There appear to be contradictory findings by the Tribunal. On the one hand, the Tribunal held that the arrangement between the parties was to confer the benefit of ownership upon the assessee and that the assessee had acquired a capital asset and the expenditure in doing so had to be treated as capital expenditure. On the other hand, the Tribunal held that the assessee being a lessee under the agreement, cannot be said to be the owner of the property and was, therefore, not entitled to depreciation under section 32 - as arrangement between the lessor and the assessee was, in effect, an agreement of sale of the property by the lessor to the assessee he is entitled to claim depreciation - in favour of assessee.
Issues Involved:
1. Disallowance of expenses incurred by employees after reaching the destination under section 39 read with Rule 60. 2. Inclusion of reimbursement of medical expenses in salary/remuneration for disallowance under section 40(c). 3. Consideration of expenditure on personal use of motor cars provided to Directors for disallowance under section 40(c). 4. Treatment of rent as capital expenditure and acquisition of a capital asset. 5. Applicability of amended depreciation rates from 2nd April 1983 for assessment year 1983-84. 6. Allowability of depreciation on the payment treated as capital expenditure for acquiring a capital asset. 7. Basis for disallowance under Rule 6-D (each employee basis vs. trip basis). Detailed Analysis: 1. Disallowance of Expenses Incurred by Employees (Question No. i): The Tribunal held that expenses incurred by employees after reaching the destination, including stay expenses, should be disallowed under section 39 read with Rule 60. This question was agreed to be answered in the negative and in favor of the assessee, based on the precedent set by Commissioner of Income Tax v. Gannon Dunkerly & Co. (1993) 114 CTR (Bom) 56. 2. Reimbursement of Medical Expenses (Question No. ii): The Tribunal's decision that reimbursement of medical expenses forms part of salary/remuneration for disallowance under section 40(c) was also agreed to be answered in the negative and in favor of the assessee, following Ceat Tyres of India Ltd. v. Commissioner of Income Tax (1994) 121 CRT (Bom) 80. 3. Personal Use of Motor Cars (Question No. iii): The Tribunal held that for quantifying disallowance under section 40(c), the expenditure incurred by the company towards the personal use of motor cars provided to Directors should be considered, not the perquisite value as per Rule 3 of the Income Tax Rules. This was agreed to be answered in the affirmative in favor of the respondent, based on Commissioner of Income Tax v. British Bank of Middle East (2001) 251 ITR 217. 4. Disallowance Under Rule 6-D (Question No. vii): The Tribunal's decision that disallowance under Rule 6-D should be worked out on each employee basis rather than on a trip basis was agreed to be answered in the negative in favor of the respondent, following Commissioner of Income Tax v. Aorow India Ltd. (1998) 229 ITR 325. 5. Applicability of Amended Depreciation Rates (Question No. v): The assessee claimed higher depreciation rates based on the Income-tax (Fourth Amendment) Rules, 1983, effective from 2nd April 1983. The Assessing Officer, Commissioner of Income-tax (Appeals), and Tribunal rejected this claim, holding that the amended rules apply from the assessment year 1984-85 onwards. This position was upheld, referencing Andhra Cements Co. Ltd. v. Commissioner of Income-tax (1998) 232 ITR 364 and S.P. Jaiswal Estates Pvt. Ltd. v. CIT (1994) 209 ITR 307. The question was answered in the affirmative, in favor of the Department. 6. Treatment of Rent as Capital Expenditure (Question Nos. iv and vi): The Tribunal examined the lease and subsequent agreements between the assessee and the lessor, concluding that the arrangement was effectively a sale of the property, making the rent payment a capital expenditure. The Tribunal held that the assessee acquired a capital asset, and thus, the expenditure was capital in nature. However, the Tribunal's finding that the assessee, being a lessee, was not entitled to depreciation under section 32 was contradictory. The High Court concluded that the assessee was the owner of the property, entitled to depreciation, referencing Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775. Consequently, Question No. iv was answered in the affirmative, in favor of the Department, while Question No. vi was answered in the negative, in favor of the assessee. Conclusion: The High Court disposed of the Reference by answering the questions as agreed upon by the parties and based on the detailed analysis of the agreements and relevant legal precedents.
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