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Issues:
1. Whether the cost of a diesel generating set is allowable as revenue expenditure. 2. Applicability of provisions of section 40A(8) in respect of interest paid to directors and shareholders. Analysis: Issue 1: The dispute in this case revolves around the treatment of the cost of a diesel generating set as revenue expenditure. The assessee claimed the cost of the generating set as a revenue expenditure, stating it was installed as a standby to ensure production continuity during power failures. The Commissioner (Appeals) allowed the claim based on previous judgments and the purpose of the installation. However, the department contended that the cost should be considered capital expenditure, citing a Supreme Court decision. The Tribunal analyzed the facts and distinguished previous judgments cited by the assessee. It noted that the generating set was a first purchase, not a replacement, and belonged solely to the assessee. The Tribunal held that the generating set provided an enduring benefit and could not be treated as revenue expenditure simply because it was a standby. It cautioned against a broad interpretation that could lead to absurd results, such as classifying every standby item as revenue expenditure. Consequently, the Tribunal reversed the Commissioner's decision and allowed the appeal in favor of the revenue. Issue 2: The second issue pertains to the applicability of section 40A(8) concerning interest paid to directors and shareholders. The department argued that a Special Bench decision supported the application of this section, contrary to the Commissioner's ruling. The assessee contended that the accounts of directors did not qualify as deposits under section 40A(8). The Tribunal upheld the department's position, relying on the Special Bench decision and rejecting the assessee's arguments. Consequently, the Tribunal reversed the Commissioner's decision and allowed this ground in favor of the department. In conclusion, the Tribunal partly allowed the revenue's appeal, reversing the Commissioner's decisions on both issues. Additionally, the cross-objection became infructuous due to the decision in the revenue's appeal and was dismissed.
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