2006 (12) TMI 136 - HC - Income Tax

Whether Tribunal was right in law in holding that the driver s salary was not to be included while working out the disallowance u/s 37(3A) - expression running and maintenance of motor cars would clearly include the expenditure on hiring a drive for running, the said motor car hence, driver s salary must be included while working out the disallowance u/s 37(3A) - assessee claimed investment allowance in respect of its refinery unit for new machinery - Assessing Officer is not justified in disallowing the claim on the ground that the refinery was not a manufacturing process/industrial undertaking

Summary

Issues:
1. Interpretation of section 37(3A/3B) regarding driver's salary disallowance.
2. Claim on account of leave with wages/salary as a contingent liability.
3. Classification of refinery units as industrial undertakings for investment allowance.

Analysis:
1. The first issue involved the interpretation of section 37(3A/3B) concerning the disallowance of the driver's salary. The Assessing Officer disallowed 20% deduction for drivers' salary under section 37(3B) of the Income-tax Act, 1961. However, the Tribunal reversed this decision, stating that the expenditure was covered under section 37(1) and not under section 37(3B). The court considered various judgments, including Britannia Industries Ltd. v. CIT, to conclude that the disallowance under section 37(3B) applies irrespective of other provisions. The court ruled in favor of the Revenue, emphasizing that the intention of the Legislature was clear to exclude certain expenses under section 37. The distinction between "repairs" and "maintenance" was also discussed, highlighting the literal interpretation of the statute.

2. The second issue revolved around the claim for deduction on account of leave with wages/salary, treated as a contingent liability by the Assessing Officer. The appellate authority accepted the claim based on the mercantile system of accounting followed by the assessee. The Tribunal upheld this view, considering the consistency with earlier assessment years. The court referred to past judgments, including CIT v. Oswal Woollen Mills Ltd., to support the assessee's position. Consequently, the court ruled in favor of the assessee, emphasizing the treatment of liability under the mercantile system.

3. The final issue dealt with the classification of the refinery units as industrial undertakings for investment allowance. The Assessing Officer initially disallowed the claim, arguing that the refinery did not qualify as a manufacturing process/industrial undertaking. However, the appellate authority and the Tribunal accepted the assessee's plea, citing decisions from earlier years. The court referred to CIT v. Oswal Woollen Mills Ltd. to support the assessee's position. Consequently, the court ruled in favor of the assessee, recognizing the refinery units as industrial undertakings eligible for investment allowance.

In conclusion, the court addressed the referred questions comprehensively, analyzing each issue in detail and providing a reasoned judgment based on statutory interpretation, past decisions, and the specific circumstances of the case.