1991 (6) TMI 63 - HC - Income Tax

Building Business Expenditure Depreciation Disallowance New Industrial Undertaking Plant Roads Special Deduction

Summary

Issues:
1. Recomputation of capital employed for deduction under section 80J and rule 19A.
2. Allowability of expenses under section 37(1) and section 37(4).
3. Application of tests for granting deduction of impugned expenditure.
4. Disallowance of expenditure for maintenance of guest house.
5. Disallowance of entertainment expenditure under section 37(2B).
6. Entitlement to depreciation on the cost of roads as 'plant.'
7. Inclusion of written down value of approach road in computing fixed assets.

Analysis:

1. The High Court was asked to opine on the recomputation of capital employed for deduction under section 80J and rule 19A. The court referred to the decision in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 and ruled against the assessee, aligning with the Supreme Court's decision.

2. The court addressed the allowability of expenses under section 37(1) and section 37(4). It relied on the decision in CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424 to support the assessee's position, answering questions in favor of the assessee.

3. Regarding the application of tests for granting deduction of impugned expenditure, the court followed the precedent set in Patel Bros. [1977] 106 ITR 424 and ruled in favor of the assessee.

4. The court deliberated on the disallowance of expenditure for maintenance of the guest house. It differentiated between the expenses incurred for waterproofing work and other customary hospitality expenses. The court held that the waterproofing work expenditure was allowable under section 30(a)(ii) and not hit by section 37(4).

5. The issue of disallowance of entertainment expenditure under section 37(2B) was also considered. The court ruled in favor of the assessee, deleting the disallowed amount based on the applicable provisions.

6. The court discussed the entitlement to depreciation on the cost of roads as 'plant.' While the Tribunal's decision was not upheld, the court allowed depreciation on the cost of approach roads treating them as a building, directing the computation of depreciation accordingly.

7. Lastly, the court addressed the inclusion of the written down value of the approach road in computing fixed assets. Following previous decisions, the court directed the inclusion of the written down value, subject to recalculations based on the provided directions.

In conclusion, the High Court answered the reference questions comprehensively, aligning with legal precedents and providing detailed reasoning for each issue raised.