1981 (6) TMI 28 - HC - Income Tax

Summary

Issues involved:
The judgment involves three main Issues:
1. Whether interest payments not allowable as revenue expenditure represent a part of the actual cost of assets, making depreciation and development rebate admissible.
2. Whether certain expenses incurred for staff training, insurance, power, and fuel can be included in the original cost of plant and machinery for the purpose of allowance of development rebate and depreciation.
3. Whether interest on deferred payment for machinery should be granted development rebate.

Issue 1:
The Company incurred expenses during pre-production stages, arguing that these expenses should be considered part of the cost of assets. The lower authorities disallowed depreciation and development rebate on certain expenses. The Tribunal considered various authoritative opinions and decided to allow capitalization of some expenses for depreciation and development rebate, reducing the disallowed amount.

Issue 2:
Regarding expenses for staff training, insurance, and power and fuel, the Tribunal allowed capitalization of a portion of these expenses for depreciation and development rebate. The Tribunal corrected an error in the AAC's order and directed the grant of depreciation and development rebate on certain expenses related to the construction of the plant.

Issue 3:
The Tribunal considered the interest on deferred payment for machinery and directed the Income Tax Officer to grant depreciation and development rebates in accordance with the law, provided the necessary conditions were met. The Tribunal relied on previous decisions and principles of accountancy to support its decision.

The Court found that the interest paid before the commencement of production on amounts borrowed for the acquisition and installation of plant and machinery formed part of the actual cost of assets. Referring to a previous case, the Court concluded that the costs in question were incurred for the acquisition of assets and bringing them into existence. Therefore, the Tribunal was justified in allowing the depreciation and development rebate claimed by the assessee.

In conclusion, the Court answered all three questions in favor of the assessee, with each party bearing its own costs.