1986 (5) TMI 46 - AT - Income Tax

Summary

Issues Involved:

1. Applicability of section 40A(8) of the Income-tax Act, 1961 for the assessment year 1976-77.
2. Assessability of reimbursement of medical expenses and applicability of sections 40A(5)/40(c) of the Act.
3. Disallowance of depreciation on assets used for scientific research.
4. Deductibility of foreign travel expenses of the wife of the chairman of the board of directors.
5. Deductibility of surtax.

Summary:

1. Applicability of Section 40A(8):
The main issue was whether the provisions of section 40A(8) of the Income-tax Act, 1961 ('the Act') applied to the assessment year 1976-77, regardless of the previous year followed by the assessee. The Tribunal concluded that section 40A(8) was applicable to the assessment year 1976-77, emphasizing that the law in force at the beginning of the assessment year governs the case, irrespective of the previous year followed by the assessee. The Tribunal upheld the Commissioner (Appeals)'s order confirming the disallowance made by the ITO.

2. Reimbursement of Medical Expenses:
The assessee contested the ITO's treatment of reimbursement of medical expenses as a perquisite under sections 40A(5)/40(c). The Tribunal referred to the Special Bench decision in Blackie & Sons (India) Ltd. v. ITO, which held that reimbursement of medical expenses constitutes part of salary as per section 17(1) read with section 17(3). The Tribunal upheld the Commissioner (Appeals)'s decision, treating the reimbursement as part of salary for computing disallowance under section 40A(5).

3. Depreciation on Scientific Research Assets:
The assessee claimed depreciation on assets used for scientific research, which had already been allowed full deduction under section 35 in earlier years. The Tribunal upheld the Commissioner (Appeals)'s decision rejecting the claim for depreciation, referencing the Madras High Court's decision in CIT v. Lucas TVS Ltd. The Tribunal directed the ITO to abide by the Supreme Court's decision if the constitutionality of the amendment was challenged.

4. Foreign Travel Expenses:
The ITO disallowed foreign travel expenses of the chairman's wife, questioning the business purpose. The Tribunal, considering the company's application to the Reserve Bank of India and the social engagements involved, held that the expenses were in the business interest and allowable under section 37(1).

5. Surtax Deduction:
The ITO rejected the assessee's claim for surtax deduction, and the Commissioner (Appeals) upheld this decision, referencing the Tribunal Special Bench decision in Amar Dye-Chem Ltd. v. ITO and various High Court decisions. The Tribunal confirmed the disallowance of surtax deduction.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the applicability of section 40A(8) for the assessment year 1976-77, treating medical reimbursement as part of salary, rejecting depreciation on scientific research assets, allowing foreign travel expenses of the chairman's wife, and disallowing surtax deduction.