1981 (1) TMI 55 - HC - Income Tax

Summary

Issues: Interpretation of capital expenditure for road construction and entitlement to development rebate on new cooling coils.

Interpretation of Capital Expenditure for Road Construction:
The case involved a co-operative society running sugar mills that paid Rs. 3,490 for the construction of a new road. The society claimed this amount as a revenue expenditure, but it was disallowed by the Income Tax Officer (ITO). The Appellate Authority Commissioner (AAC) upheld the ITO's decision. The Tribunal concluded that the contribution towards road construction was capital expenditure as commercial expediency was not established. The Tribunal referred to a previous order regarding a similar deduction claim by the assessee. The Tribunal held that the contribution for road construction was rightly disallowed as capital expenditure. The counsel for the assessee cited a Supreme Court judgment but failed to establish commercial expediency. Consequently, the Tribunal's decision was against the assessee and in favor of the revenue.

Entitlement to Development Rebate on New Cooling Coils:
The assessee claimed development rebate for Rs. 16,856 spent on installing new cooling coils, reducing sugar crystal formation time. The ITO and AAC disallowed the claim. However, the Tribunal referred to a relevant case law and the definition of "plant" under section 43(3) of the Income-tax Act, 1961, which includes apparatus used for business. The Tribunal concluded that the assessee was entitled to claim development rebate on the new cooling coils as they fell under the definition of "plant." The definition of "plant" was deemed comprehensive enough to cover the new machinery. Therefore, the Tribunal's decision favored the assessee and went against the revenue.

In conclusion, the High Court answered both questions raised by the revenue and the assessee, stating that the contribution for road construction was capital expenditure and not allowable under section 37(1) of the Income-tax Act, 1961. On the other hand, the assessee was entitled to claim development rebate on the value of the new cooling coils. The references were answered with no order as to costs.