1982 (8) TMI 44 - HC - Income Tax

Summary

Issues involved: Assessment of business loss, claim for deduction of expenditure, claim for depreciation rate.

Assessment of business loss: The assessee, a firm of 9 partners engaged in the business of manufacturing and selling brass and stainless steel sheets, filed a return for the assessment year 1971-72 claiming a business loss. The Income Tax Officer (ITO) disallowed a portion of the expenditure incurred for providing carpets and screens in two cinema theatres, but allowed depreciation on partition works and false ceiling. The assessee appealed to the Appellate Authority Commissioner (AAC) who upheld the disallowance and depreciation rate. The Income Tax Appellate Tribunal ruled in favor of the assessee, considering the carpets and screens as revenue expenditure and allowing depreciation at a higher rate for partition works and false ceiling.

Claim for deduction of expenditure: The Revenue contended that the expenditure on carpets and screens should be treated as capital expenditure since they were provided before the theatres' inauguration. The assessee argued that the expenditure was for decoration and attracting more customers, thus constituting revenue expenditure. The High Court agreed with the assessee, citing precedents and principles distinguishing between capital and revenue expenditure.

Claim for depreciation rate: The dispute centered on whether the partition works and false ceiling should be considered part of the building for depreciation calculation. While the authorities applied a lower depreciation rate for buildings, the Tribunal categorized them as "fittings" under the Income Tax Rules, justifying a higher depreciation rate. The High Court concurred with the Tribunal's interpretation, allowing the higher depreciation rate.

In conclusion, the High Court upheld the assessee's claims for deduction of expenditure on carpets and screens as revenue expenditure and for a higher depreciation rate on partition works and false ceiling. The judgment aligned with established principles distinguishing between capital and revenue expenditure, emphasizing the commercial purpose and nature of the expenses incurred.