2007 (7) TMI 284 - HC - Income Tax

Whether Tribunal was right in holding that the expenditure for issue of debentures and fixed deposits is a revenue expenditure Held yes because expenses relating to obtaining fixed deposits are closely linked with the business requirement of the assessee - Whether Tribunal was right in holding that stand by assets which are not put to use during the relevant year are entitled to depreciation Held yes

Summary

Issues:
1. Whether the expenditure for issue of debentures and fixed deposits is a revenue expenditure?
2. Whether stand by assets not used during the relevant year are entitled to depreciation?

Analysis:
Issue 1:
The court considered the appeals against an order by the Income-tax Appellate Tribunal regarding the deduction of expenditure on debentures and fixed deposits for the assessment years 1993-94 to 1996-97. The Assessing Officer disallowed the claim, but the Commissioner of Income-tax (Appeals) allowed it. The court referred to previous judgments and held that expenses related to obtaining fixed deposits are allowable as they are closely linked to business requirements. The court also discussed a case regarding partly convertible debentures and concluded that the entire expenditure should be deductible. Therefore, the court ruled that the expenditure on debentures and fixed deposits is a revenue expenditure.

Issue 2:
Regarding the entitlement to depreciation on stand by assets not used during the relevant year, the court referred to previous judgments and concluded that the assessee is entitled to depreciation on spare parts, even if they are stand-by items not used during the accounting years. Based on these precedents, the court held that stand by assets not put to use during the relevant year are entitled to depreciation. Since these issues were previously decided in a similar case involving the same assessee, the court found no error in the Tribunal's order and dismissed the tax case appeals, along with connected miscellaneous petitions.