1988 (3) TMI 14 - HC - Income Tax

Issues Involved:
1. Admissibility of deduction for contribution towards road construction.
2. Allowance of depreciation on increased asset value due to exchange rate fluctuation.
3. Classification of filing fee as revenue expenditure.
4. Treatment of development and commissioning expenses as revenue expenditure.
5. Restriction of relief u/s 80J on a pro rata basis.

Summary:

1. Admissibility of Deduction for Contribution Towards Road Construction:
The Tribunal held that the sum of Rs. 3,61,236 contributed by the assessee towards the construction of a road was not an admissible deduction in computing business income, deeming it capital expenditure. The High Court, however, disagreed, referencing the Supreme Court's decision in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293, which emphasized that expenditure facilitating business operations without acquiring a tangible or intangible asset is revenue expenditure. The High Court concluded that the contribution was for facilitating business operations and should be treated as revenue expenditure, thus allowing the deduction.

2. Allowance of Depreciation on Increased Asset Value Due to Exchange Rate Fluctuation:
The first question at the instance of the Department was whether the Tribunal was right in upholding the Commissioner's (Appeals) order allowing depreciation on the increased value of assets due to exchange rate fluctuation. This issue was covered by the court's decision in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 (Kar), and was answered in the affirmative and against the Revenue.

3. Classification of Filing Fee as Revenue Expenditure:
The second question concerned the allowance of Rs. 75,600 paid as filing fee as revenue expenditure. The Tribunal allowed it as revenue expenditure, following the Madras High Court's decision in CIT v. Kishenchand Chellaram (India) P. Ltd. [1981] 130 ITR 385, which applied the Supreme Court's ratio in India Cements Ltd. v. CIT [1966] 60 ITR 52. The High Court agreed, answering in the affirmative and against the Revenue.

4. Treatment of Development and Commissioning Expenses as Revenue Expenditure:
The third question involved whether Rs. 1,66,184 being development and commissioning expenses should be treated as revenue expenditure. The Tribunal's decision was supported by the court's ruling in CIT v. Hindustan Machine Tools [1989] 175 ITR 216, and thus, the High Court answered in the affirmative and against the Revenue.

5. Restriction of Relief u/s 80J on a Pro Rata Basis:
The fourth question addressed the Tribunal's decision that the Income-tax Officer was not justified in restricting the relief u/s 80J on a pro rata basis. This issue was covered by the court's decision in CIT v. Mysore Petro-Chemical Ltd. [1984] 145 ITR 416, and was answered in the affirmative and against the Revenue.

Separate Judgment by Judge:
Rama Jois J. concurred with the answers to the questions referred at the instance of the Revenue but expressed a differing view on the application of the "precedent sub silentio" principle to the Supreme Court's decision in Travancore Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900. He agreed that the decision in L. H. Sugar Mills' case [1980] 125 ITR 293, being a later decision by a three-judge Bench, should be followed.

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