1989 (7) TMI 7 - HC - Income Tax

Issues Involved:

1. Exclusion of Rs. 1,79,569 for computing disallowance under section 40(a)(v) of the Income-tax Act, 1961.
2. Attribution of income earned from transporting crude oil for ONGC to the business of production of mineral oil under section 80-I of the Income-tax Act, 1961.
3. Entitlement to relief under section 80-I for income earned from transporting crude oil for ONGC.

Detailed Analysis:

Issue 1: Exclusion of Rs. 1,79,569 for Computing Disallowance under Section 40(a)(v)

The Tribunal held that the expenses incurred on repairs and maintenance of bungalows cannot be considered as a perquisite. Section 40(a)(v) was introduced to limit the deductible amount of expenditure incurred by companies in providing perquisites, benefits, or amenities to higher-paid employees to 20% of the basic salary of each employee. The Kerala High Court in CIT v. Travancore Tea Estates Co. Ltd. [1980] 122 ITR 557 interpreted that expenses on the maintenance of buildings do not confer any benefit, amenity, or perquisite to employees. This reasoning was supported by the Calcutta High Court in CIT v. Davidson of India Pvt. Ltd. [1984] 148 ITR 544, which held that expenditure on repairs to flats did not confer any benefit, amenity, or perquisite to employees within the meaning of section 40(c)(iii). The Andhra Pradesh High Court in CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 169 ITR 324 also held that the cost of repairs to buildings allotted to employees was not a perquisite for purposes of section 40A(5). The Tribunal's decision was affirmed, and the first question was answered in the affirmative and in favor of the assessee.

Issue 2: Attribution of Income Earned from Transporting Crude Oil for ONGC to the Business of Production of Mineral Oil

The assessee-company was engaged in the production, transportation, and sale of crude oil, and it used its pipeline to transport crude oil for ONGC. The Tribunal found that the transportation of ONGC's crude oil was integrally connected with the assessee's business. The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 established that the expression "profits attributable to priority industry" is wider in import than "derived from." The Tribunal held that the income from transporting ONGC's crude oil was attributable to the assessee's priority industry, i.e., production of mineral oil. This interpretation was supported by various judgments, including CIT v. West Coast Paper Mills Ltd. [1988] 169 ITR 288 (Bom) and CIT v. Buckau Wolf New India Engineering Works Ltd. [1984] 150 ITR 180 (Bom), which held that income with a direct nexus to the priority industry is attributable to it. The second question was answered in the affirmative and in favor of the assessee.

Issue 3: Entitlement to Relief under Section 80-I for Income Earned from Transporting Crude Oil for ONGC

The Tribunal found that the transportation of ONGC's crude oil was part of the assessee's business of transporting its own crude oil. The income from this activity was integrally connected with the assessee's business of production and transportation of crude oil. The Tribunal's decision was supported by the principle that the expression "attributable to" in section 80-I is broader than "derived from," as established in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The Tribunal's decision was affirmed, and the third question was answered in the affirmative and in favor of the assessee.

Conclusion:

The High Court affirmed the Tribunal's decisions on all three issues, ruling in favor of the assessee. The expenses on repairs and maintenance of bungalows were not considered perquisites, the income from transporting ONGC's crude oil was attributable to the priority industry, and the assessee was entitled to relief under section 80-I for the income earned from transporting ONGC's crude oil. There was no order as to costs.

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