1991 (8) TMI 120 - AT - Income Tax

Summary

Issues Involved:

1. Allowance of royalty payment as revenue expenditure.
2. Allowance of interest payment as revenue expenditure.
3. Allowance of foreign tour expenses as revenue expenditure.
4. Allowance of investment allowance and additional depreciation on a computer.
5. Disallowance under Section 43B for certain payments made after the close of the accounting period.
6. Disallowance of legal and professional charges for revaluation of assets.

Issue-wise Detailed Analysis:

1. Allowance of Royalty Payment as Revenue Expenditure:

The departmental appeal for the assessment year 1982-83 raised the issue that the CIT(A) erred in allowing royalty payment of Rs. 27,56,264 as revenue expenditure. It was noted that the facts were identical to previous years (1976-77 and 1981-82), where similar claims had been allowed. The High Court had held that royalty payments were of a revenue nature. The Tribunal followed this decision and rejected the department's ground.

For the assessment year 1983-84, the royalty payment of Rs. 34,82,301 was also allowed as revenue expenditure based on the same reasoning.

In the assessment year 1984-85, the royalty payment of Rs. 29,49,030 was similarly allowed as revenue expenditure.

2. Allowance of Interest Payment as Revenue Expenditure:

The second ground for the assessment year 1983-84 concerned the interest payment of Rs. 4,35,754, which was incurred in connection with the acquisition of new assets before installation. The ITO had disallowed this interest, treating it as part of the capital cost. However, the CIT(A) allowed it as revenue expenditure, considering the expansion as an integral part of the profit-earning process.

The Tribunal agreed with the CIT(A), stating that the borrowing was for the purpose of the existing business, and the interest paid was allowable under Section 36(1)(iii) of the Act. The Tribunal rejected the department's ground.

3. Allowance of Foreign Tour Expenses as Revenue Expenditure:

The third ground for the assessment year 1983-84 involved foreign tour expenses of Rs. 52,952. The department argued that these expenses were for acquiring plant and machinery and should be capitalized. The assessee contended that the tour was for obtaining technical know-how for business expansion.

The Tribunal found that the tour was undertaken to obtain technical know-how for the existing business, and thus, the expenses were allowable as revenue expenditure. The department's ground was rejected.

For the assessment year 1984-85, foreign tour expenses of Rs. 1,27,000 were similarly allowed as revenue expenditure.

4. Allowance of Investment Allowance and Additional Depreciation on a Computer:

The fourth ground for the assessment year 1983-84 concerned the investment allowance and additional depreciation on a computer. The ITO had disallowed the claim, treating the computer as an office appliance. The CIT(A) allowed the investment allowance, relying on the decision in CIT vs. IBM World Trade Corporation.

The Tribunal held that the computer qualified as "plant" under Section 43(3) and was not an office appliance. It was used for maintaining production schedules and was connected with the manufacturing process. The Tribunal rejected the department's ground, stating that the computer was eligible for investment allowance and depreciation.

5. Disallowance under Section 43B for Certain Payments Made After the Close of the Accounting Period:

For the assessment year 1984-85, the ITO had disallowed Rs. 10,64,776 under Section 43B, which included various liabilities not paid during the accounting year. The CIT(A) granted relief of Rs. 1,45,393, considering payments made within the time allowed by the respective provisions of the Act.

The Tribunal upheld the CIT(A)'s decision, citing the Tribunal's earlier decision and the Patna High Court's ruling in Jamshedupur Motor Accessories Stores vs. Union of India. The department's ground was rejected.

The assessee's cross-objection regarding the sustaining of the addition of Rs. 9,19,383 under Section 43B was not pressed, as the deduction had already been allowed in the subsequent year.

6. Disallowance of Legal and Professional Charges for Revaluation of Assets:

The next ground in the cross-objection for the assessment year 1984-85 involved the disallowance of legal and professional charges of Rs. 10,640 for revaluation of assets. The ITO had treated this expenditure as capital in nature, and the CIT(A) confirmed the disallowance.

The Tribunal found that the revaluation was done for obtaining loans from the bank, making the expenditure fall in the revenue field. The Tribunal directed the ITO to allow the deduction.

Conclusion:

The departmental appeals were dismissed, and the cross-objection of the assessee was partly allowed.