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Issues Involved:
1. Deductibility of expenses incurred on rented buildings as revenue expenditure. 2. Allowance of depreciation on flat, furniture, and air-conditioning machinery under section 40(c)(ii). 3. Deductibility of fees paid to the Registrar of Companies for increasing the capital under section 37(1). Summary: Issue 1: Deductibility of Expenses on Rented Buildings The assessee incurred expenses on improvements to three rented buildings. The ITO disallowed these expenses as capital expenditure and denied depreciation since the assessee was not the owner. The AAC upheld this view. However, the Tribunal allowed the expenses as revenue expenditure, stating that the improvements did not provide an enduring benefit and were necessary for business operations. The High Court affirmed this view, holding that the expenses were for carrying on the business and thus deductible as revenue expenditure. The first question was answered in the affirmative and in favor of the assessee. Issue 2: Allowance of Depreciation on Flat, Furniture, and Air-Conditioning Machinery The ITO disallowed part of the depreciation claimed on a flat, furniture, and air-conditioning machinery used by the managing director, citing section 40(c)(ii). The AAC agreed, stating that there was no evidence of business benefit from the flat. The Tribunal, however, allowed the entire depreciation, arguing that it was a statutory allowance and could not be partially disallowed under section 40(c)(ii). The High Court found the Tribunal's reasoning flawed, stating that even statutory allowances could be scrutinized under section 40(c). The Court noted the lack of findings on whether the claim was excessive or unreasonable and returned the reference on this question unanswered, directing the Tribunal to re-examine the matter. Issue 3: Deductibility of Fees Paid to Registrar of Companies The ITO disallowed the fees paid for increasing the company's capital without providing reasons. The AAC upheld this, stating it was not wholly and exclusively for business purposes. The Tribunal allowed the deduction, citing the Supreme Court's decision in India Cements Ltd. v. CIT, which held that such expenses did not result in an enduring benefit and were thus revenue in nature. The High Court agreed, stating that the expenditure was for business purposes and did not have a capital element. The third question was answered in the affirmative and in favor of the assessee. Conclusion: The High Court ruled in favor of the assessee on the first and third issues, allowing the expenses as revenue expenditure and the fees as deductible under section 37(1). The second issue was returned to the Tribunal for further examination. No order as to costs was made.
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