1997 (1) TMI 556 - HC - Income Tax

Summary

Issues:
1. Allowability of expenses incurred in shifting the factory from Madras to Coonoor as a deduction.
2. Deductibility of the sum claimed as provision for the monetary value of unavailed leave of the employee.
3. Entitlement of the assessee to the deduction of recoverable bonus written off in the assessment.

Analysis:
1. The first issue revolves around the deductibility of expenses incurred in shifting the factory from Madras to Coonoor. The assessee argued that the premises in Madras were retained for the company's officers, indicating no intention to continue manufacturing there. However, the ITO considered the expenditure as capital expenditure, citing a Supreme Court decision. The AAC allowed the deduction, which was confirmed on appeal. The High Court, referencing previous decisions, held that expenditure related to shifting machinery was capital, but shifting employees was revenue expenditure. Consequently, the Court answered question No. 1 in favor of the assessee.

2. The second issue pertains to the deduction of a sum representing a recoverable bonus treated as an expenditure by the company. The ITO raised concerns about the admissibility of the deduction, questioning if the amount was waived in prior years or constituted a bad debt. The AAC and Tribunal deemed it a business expenditure, allowing the deduction. Citing a previous judgment, the High Court affirmed that bonus paid to settle disputes qualifies as a business expenditure, thus allowing the deduction. Consequently, question No. 3 was answered in favor of the assessee.

Conclusion:
The High Court ruled in favor of the assessee on both issues, allowing the deductions for expenses incurred in shifting the factory and the recoverable bonus written off. The Court's decision was based on distinguishing between capital and revenue expenditures and considering the nature of the expenses in relation to the business operations.