1980 (7) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Allowability of foreign tour expenditure as revenue expenditure.
2. Entitlement to depreciation and development rebate on machinery and building accounts.
3. Allowability of expenditure on testing formula as revenue expenditure.
4. Classification of roads as part of 'plant' for depreciation purposes.

Summary:

Issue 1: Allowability of Foreign Tour Expenditure as Revenue Expenditure
The court examined whether the expenditure on foreign tours of Mr. Rohit Chinubhai and Mr. H. P. Gupta was allowable as revenue expenditure. The Income Tax Officer (ITO) had disallowed the expenditure, considering it capital in nature. The Appellate Assistant Commissioner (AAC) partially allowed the expenditure for Rohit Chinubhai but disallowed it for H. P. Gupta. The Tribunal allowed the entire expenditure as revenue expenditure. The High Court, however, held that half of the expenditure incurred for Rohit Chinubhai's visit was allowable as revenue expenditure, while the remaining half and the entire expenditure for H. P. Gupta's visit were not allowable as revenue expenditure.

Issue 2: Entitlement to Depreciation and Development Rebate on Machinery and Building Accounts
The court considered whether the assessee was entitled to depreciation and development rebate on Rs. 1,08,000 in the machinery account and Rs. 60,000 in the building account. The AAC had allocated the technical know-how fees in the ratio of 9:5:2 and allowed depreciation accordingly. The Tribunal upheld this allocation. The High Court affirmed that the assessee was entitled to depreciation and development rebate on the allocated amounts.

Issue 3: Allowability of Expenditure on Testing Formula as Revenue Expenditure
The court examined whether the expenditure of Rs. 24,000 incurred on the testing formula was allowable as revenue expenditure. The Tribunal had held it as revenue expenditure. However, the High Court disagreed, stating that the expenditure was for plant and thus available for depreciation, not as revenue expenditure.

Issue 4: Classification of Roads as Part of 'Plant' for Depreciation Purposes
The court considered whether roads form part of the 'plant' and if the assessee was entitled to claim depreciation on the amount of Rs. 39,180 spent on roads. The Tribunal had held that roads qualified as 'plant'. The High Court, however, held that roads should be treated as part of the building for depreciation purposes, not as part of the plant.

Conclusion:
1. Half of the expenditure on Rohit Chinubhai's foreign tour was allowable as revenue expenditure; the remaining half and the entire expenditure on H. P. Gupta's tour were not allowable as revenue expenditure.
2. The assessee was entitled to depreciation and development rebate on Rs. 1,08,000 in the machinery account and Rs. 60,000 in the building account.
3. The expenditure of Rs. 24,000 on the testing formula was not allowable as revenue expenditure.
4. Roads do not form part of the plant but are available for depreciation as part of the building.