1987 (1) TMI 65 - HC - Income Tax

Assessment, Depreciation, Income, Industrial Company, Interest On Loans And Advances, Limitation, Owner

Issues Involved:
1. Limitation for completing assessment proceedings.
2. Classification as an industrial company.
3. Ownership and eligibility for depreciation and development rebate.
4. Classification of expenditure as capital or revenue.
5. Accrual and recognition of interest income.

Detailed Analysis:

1. Limitation for Completing Assessment Proceedings
The first issue pertains to whether the assessment order for the assessment year 1965-66 became time-barred under sub-section (1) of section 153 of the Income-tax Act, 1961. The court noted that the company court had stayed the assessment proceedings, and the final order was passed within the extended period. The court referred to Explanation I to section 153, which allows for the exclusion of the period during which the assessment proceeding is stayed by a court order. Thus, the court concluded that the assessment was completed within the prescribed period of limitation, answering the question in the affirmative and in favor of the Revenue.

2. Classification as an Industrial Company
The second issue involves whether the assessee qualifies as an industrial company under the Finance Act, 1965, based on its business of exhibiting films. The Tribunal rejected this claim, stating that the business of exhibiting films does not constitute "processing of goods" as there is no change in the films themselves. The court upheld this view, concluding that the expression "processing of goods" does not apply to the mere projection of films. Therefore, the question was answered in favor of the Revenue.

3. Ownership and Eligibility for Depreciation and Development Rebate
The third issue concerns whether the assessee is the owner of the cinema styled as Maratha Mandir and the machinery, plant, etc., installed therein, thereby qualifying for depreciation under section 32(1) of the Act. The court examined the terms of the agreement and the consent decree, concluding that the assessee did not have exclusive ownership of the property. The court emphasized that the benefit of depreciation under section 32(1) is available only to the absolute owner of the property. The introduction of sub-section (1A) to section 32, which extends benefits to lessees or licensees, further supported this interpretation. Consequently, the Tribunal's rejection of the assessee's claim was upheld, answering the question in favor of the Revenue.

4. Classification of Expenditure as Capital or Revenue
The fourth issue addresses whether the amount spent by the assessee on constructing the cinema and purchasing movable assets should be classified as capital or revenue expenditure. The Tribunal had classified the expenditure as capital, and the court found no reason to disagree. The court noted that sub-section (1A) of section 32, which allows for such capital expenditure, was not applicable during the relevant assessment years. Therefore, the Tribunal's rejection of the assessee's alternative contention was upheld, answering the question in favor of the Revenue.

5. Accrual and Recognition of Interest Income
The fifth issue involves whether the interest income of Rs. 1,15,684 accrued to the assessee on loans given to M/s Golcha Properties Pvt. Ltd., Nepalganj, Nepal, and whether the resolution passed by the assessee on June 22, 1965, affected its recognition. The Tribunal concluded that the interest was not abandoned but merely deferred. The court upheld this view, noting that there was no indication that the deferral was due to commercial expediency. The court referenced the Bombay High Court decision in H. M. Kashiparekh & Co. Ltd. v. CIT, emphasizing that abandonment for commercial expediency is necessary for such a deduction. Thus, the question was answered in favor of the Revenue.

Conclusion:
1. The Tribunal was justified in holding that the assessment order for the assessment year 1965-66 was made within the prescribed period of limitation.
2. The Tribunal was justified in holding that the assessee is not an industrial company.
3. The Tribunal was justified in holding that the assessee is not the owner of the cinema styled as Maratha Mandir and the machinery, plant, etc., installed therein, and no depreciation and development rebate are available.
4. The Tribunal was justified in rejecting the alternative contention that the amount spent on construction and purchasing movable assets was revenue expenditure.
5. The Tribunal was justified in holding that the interest income of Rs. 1,15,684 accrued to the assessee and that the resolution did not make such income non-existent for the relevant assessment year.

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