1991 (3) TMI 67 - HC - Income Tax

Actual Cost Bonus Business Expenditure Depreciation Foreign Exchange Investment Allowance

Summary

Issues Involved:
1. Investment allowance on enhanced cost due to foreign currency fluctuations.
2. Depreciation and investment allowance on capitalised amount under deferred payment scheme.
3. Treatment of excess available surplus under Payment of Bonus Act for deduction eligibility.

For the first issue, the court referred to a previous decision and answered in the affirmative in favor of the assessee. The third issue was also resolved in favor of the assessee based on a previous court decision. The second issue raised interesting aspects of sections 32 and 32A of the Income-tax Act.

Regarding the second issue, the Appellate Tribunal provided details of a transaction where the assessee claimed depreciation and investment allowance on an amount paid in instalments for machinery purchased under a deferred payment scheme. The Revenue contended that these amounts were interest payable for instalments and should not be considered in the capitalization value for depreciation and investment allowance. However, the Tribunal found that the full amount payable in instalments constituted the actual cost of the machinery, rejecting the Revenue's contention. The court noted that ownership vested with the purchaser immediately upon delivery of the machinery, and the transaction was completed upon delivery and handing over of negotiable instruments. The court emphasized the distinction between interest payable on belated payments and concessions in lump sum payments. It referred to a Supreme Court decision on capitalizing interest before production commencement on borrowed money for fixed assets.

The court analyzed the definition of "actual cost" under section 43(1) and discussed the Revenue's reliance on Explanation 8 to contend that future interest should not be included in computing actual cost. However, the court determined that the difference between gross sum and discounted sum did not represent interest payable by the assessee, as it arose due to the seller's choice to encash negotiable instruments. The court concluded that the amount in question cannot be considered interest, as there was no term for interest payment in the contract. Therefore, the court answered the second question in the affirmative and against the Revenue, allowing the claim of the assessee for depreciation and investment allowance on the capitalised amount paid in instalments for machinery.