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2012 (10) TMI 181 - HC - Income TaxMaintenance of accommodation provided to employees and Executives in Iraq - ITAT allowed the claim - Held that - the intention of the assessee was not to provide guest house accommodation for those who visited the project site on tour or visit . - Even though the accommodation provided in this case was for the entire duration of the project, what is sought by Section 37(4) and 37(5) is the type of accommodation provided to the employee who merely used them on transitory or temporary basis having regard to the controlling expression of tour and visit but also undermine the object of the provision appeal decided in favour of the assessee. Depreciation on motor cars purchased and used in Iraq - ITAT allowed the claim - Held that - As decided in CIT (Central), Patiala Versus Punjab Chemi.Plants Ltd. 2010 (7) TMI 782 - PUNJAB AND HARYANA HIGH COURT the second proviso to Section 32(1)(ii) was not to deny depreciation on foreign cars used in foreign countries for business abroad - No dispute that the expenses incurred for the upkeep of the vehicles, were otherwise business expenses, the depreciation, therefore, was directly relatable to business rather than the use of foreign or luxury cars by executives of the assessee - in favour of the assessee. Rental income from the flats - assessable as income from other sources OR house property - Held that - As the assessee-company was not the legal owner of the property in the flats & relying on judgment of the Supreme Court in CIT Versus Podar Cement Pvt. Ltd. 1997 (5) TMI 2 - SUPREME COURT owner is a person who is entitled to receive income from the property in his own right, the rental income from the flats was assessable as income from other sources u/s 56 - in favour of assessee. Provisions for completed expenses and expenses incurred on completed project - ITAT allowed the claim - Held that - As decided in CIT Vs. Triveni Engineering and Industries Limited 2010 (11) TMI 90 - DELHI HIGH COURT Tribunal has allowed the provision made by the assessee for losses on the ground that the assessee was following completed contract method and provision had been made on account of losses and on the precedent judgement - in favour of assessee.
Issues Involved:
1. Deductibility of expenses incurred on the maintenance of accommodation provided to employees in Iraq. 2. Allowability of depreciation on motor cars purchased and used in Iraq. 3. Allowability of expenses claimed under provisions for completed expenses and expenses incurred on completed projects. Issue-wise Detailed Analysis: 1. Deductibility of Expenses on Maintenance of Accommodation in Iraq: Question: Whether the ITAT is correct in holding that expenses incurred on the maintenance of accommodation provided to its employees and executives in Iraq is not disallowable? Analysis: The assessee claimed Rs. 2,09,859/- for the relevant accounting year. The Tribunal referred to its earlier orders for assessment years 1985-86 and 1986-87, which were in favor of the assessee. The Revenue contended that under Section 37(4) and Section 37(5) of the Income Tax Act, 1961, these expenses were not deductible, arguing that "residence by whatever name called" includes all kinds of accommodation used for transit. The Court noted that the term "tour" or "visit" is crucial for interpreting the expression "guest house" under Section 37(4). The accommodation provided in Iraq was for the entire duration of the project, not merely for transitory purposes. Thus, the expenses were not for a "guest house" as intended by the provisions. The Court concluded that the expenses were correctly allowed by the Tribunal. Conclusion: The question is answered against the Revenue and in favor of the assessee. 2. Allowability of Depreciation on Motor Cars in Iraq: Question: Whether the depreciation claimed on motor cars purchased and used in Iraq is allowable to the assessee? Analysis: The assessee claimed depreciation for cars used outside India for business activities in Iraq for assessment years 1987-88 and 1988-89. The Revenue argued that the second proviso to Section 32(1)(ii) denied depreciation for cars used outside India. The assessee countered with the Finance Minister's speech and Circular no. 621, which indicated that depreciation should be allowed for foreign cars used in business abroad. The Punjab & Haryana High Court had previously ruled in favor of allowing such depreciation. The Court agreed with this view, noting that the expenses incurred for the upkeep of the vehicles were business expenses, and the depreciation was directly related to business use. Conclusion: The question is answered against the Revenue and in favor of the assessee. 3. Allowability of Expenses on Completed Projects: Question: Whether the expenses claimed by the assessee under the heads provisions for completed expenses and expenses incurred on completed projects are allowable even though the Department has not accepted the system of accounting followed by the assessee? Analysis: The assessee, a builder and promoter, followed a percentage completion method for accounting profits from multi-storey projects. The AO disallowed expenses claimed under provisions for completed expenses and expenses incurred on completed projects, arguing that these were contingent liabilities. The Tribunal upheld the CIT (Appeals) decision, noting that the assessee's accounting method was consistent and accepted by the Income Tax Department. The Court referred to its own decision in CIT Vs. Triveni Engineering and Industries Limited, supporting the method of accounting used by the assessee. Conclusion: The question is answered in favor of the assessee and against the Revenue. Final Judgment: All questions framed in this reference are answered in favor of the assessee and against the Revenue. The reference is accordingly disposed of.
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