2014 (5) TMI 707 - HC - Income Tax

Nature of expenses - Provision made for expenses - Aircraft re-delivery charges, Aircraft heavy maintenance and major engine repairs, which are in the nature of contingent expenditure and not on actual basis? provisions made for expenses in respect of frequent flyer programme although the same was contingent in nature? - Held that - in relation to the applicability of circular No.9 of 1943 issued on 23rd March, 1943 and the permissible deductions thereunder being inconsonance therewith the matter will have to go back to the Assessing Officer. The Assessing Officer will follow the instructions issued in the 1943 circular for dealing with the case in which the assessee has acquired the Aircrafts under what is known as a hirepurchase agreement and particularly clause (iii) thereof in relation to the assessee before us. The Assessing Officer shall complete this exercise as expeditiously as possible and within a period of two months from the date of receipt of copy of this order.

Summary

Issues:
1. Appeal challenging order passed by Income Tax Appellate Tribunal for assessment year 2000-01.
2. Interpretation of provisions of Income Tax Act regarding various expenses and provisions.
3. Allowance of depreciation on aircraft taken on hire purchase.
4. Provision for expenses in respect of frequent flyer program.
5. Provision for spares obsolescence.
6. Expenditure on repairs to furnitures and fixtures.
7. Treatment of interest receipts from short term deposits.

Analysis:
1. The appeal by revenue contested the Tribunal's order on various issues for the assessment year 2000-01. The substantial questions of law raised included the interpretation of Income Tax Act provisions regarding contingent expenditures like aircraft re-delivery charges, heavy maintenance, major engine repairs, depreciation on aircraft taken on hire purchase, provisions for expenses in frequent flyer program, spares obsolescence, and repairs to furnitures and fixtures. The Tribunal's decisions were scrutinized for their legal validity and impact on the aviation industry.

2. The appellant argued that the Tribunal erred in allowing certain deductions, contending that the Assessing Officer rightfully disallowed contingent expenditures and questioned the depreciation claim. The appellant emphasized the significance of these issues for the aviation industry and maintained that the Tribunal's decisions were not purely academic but had practical implications.

3. The respondent countered that the appeal did not raise substantial questions of law, citing past Tribunal decisions favoring the deductions in question. The respondent supported the Tribunal's decisions on depreciation for aircraft on hire purchase, citing Circular No.9 of 1943 as a legal basis. The respondent also defended the allowance of expenses on repairs to furnitures and fixtures, citing established legal principles.

4. The High Court scrutinized the arguments presented by both parties and examined the Tribunal's decisions in detail. The Court found that certain issues, such as the deletion of disallowance on aircraft charges and expenses for frequent flyer program, did raise substantial questions of law and warranted further consideration.

5. The Court upheld the Tribunal's decision on depreciation for aircraft on hire purchase, spares obsolescence, and expenses on repairs to furnitures and fixtures, finding them in line with legal principles and supported by relevant evidence. The Court dismissed the appeal on these grounds, concluding that the Tribunal's reasoning was sound and did not exhibit any legal errors.

6. The Court directed the Assessing Officer to reevaluate the applicability of Circular No.9 of 1943 for deductions related to aircraft acquisitions under hire-purchase agreements. The Court emphasized the need for expeditious handling of the reassessment process within a specified timeframe to ensure compliance with the circular's instructions.