1989 (10) TMI 82 - AT - Income Tax

Issues Involved:
1. Applicability of Section 40(c) vs. Section 40A(5) for remuneration paid to employee directors.
2. Allowability of initial contribution to an approved Superannuation Fund.
3. Investment allowance on the cost of tractors and trailers.
4. Investment allowance on the cost of railway siding.
5. Classification of expenditure of Rs. 2,02,773 as capital or revenue.
6. Allowability of Rs. 4,25,000 for loose tools as revenue expenditure.
7. Deletion of interest levied under Section 216 of the IT Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 40(c) vs. Section 40A(5) for Remuneration Paid to Employee Directors:
The Tribunal decided in favor of the assessee, stating that the provisions of Section 40(c) are applicable to employee directors rather than Section 40A(5). The Tribunal referenced its previous decisions in the assessee's own case (ITA No. 3864/Bom/83 and ITA No. 6526/Bom/84) for the assessment year 1979-80, which held a similar view. Consequently, this ground was rejected.

2. Allowability of Initial Contribution to an Approved Superannuation Fund:
This issue was also decided in favor of the assessee, with the Tribunal relying on its earlier decision in MAHINDRA & MAHINDRA LTD. vs. ITO (1984) 8 ITD 427 (Bom) and the assessee's own case (ITA Nos. 4875 and 4876/Bom/83 for the assessment years 1977-78 and 1978-79). The Tribunal affirmed that such contributions are allowable as revenue deductions, thus rejecting this ground.

3. Investment Allowance on the Cost of Tractors and Trailers:
The Tribunal upheld the CIT(A)'s decision that tractors and trailers are not road transport vehicles but earth-moving machinery used for tilling soil, moving earth, and spreading manure in the company's township. The Tribunal referenced the CBDT Circular and the Calcutta High Court decision in ORISSA MINERALS DEVELOPMENT CO LTD. vs CIT (1979) 171 ITR 434, distinguishing these from the Gujarat High Court case (SHIV CONSTRUCTION CO vs. CIT) cited by the Departmental Representative. This ground was rejected.

4. Investment Allowance on the Cost of Railway Siding:
The Tribunal agreed with the CIT(A) that the term "for the purpose of business" in Section 32A should be interpreted broadly. It concluded that the railway siding used in the Bombay Stock Yard was indeed for the purpose of the assessee's business of manufacturing and distributing steel. Therefore, the assessee was entitled to the investment allowance, and this ground was rejected.

5. Classification of Expenditure of Rs. 2,02,773 as Capital or Revenue:
The Tribunal upheld the CIT(A)'s decision that the expenditure incurred on traveling, car hire charges, and hotel bills for officers participating in the modernization program was revenue in nature. It referenced its earlier decision in the assessee's case for the assessment year 1968-69. Consequently, this ground was rejected.

6. Allowability of Rs. 4,25,000 for Loose Tools as Revenue Expenditure:
The Tribunal accepted the assessee's change in accounting method for loose tools, which was previously upheld in the Tribunal's order for the assessment year 1980-81 (ITA No. 1835/Bom/80). It affirmed that the current expenditure on loose tools incurred during the year should be allowed in full. This ground was rejected.

7. Deletion of Interest Levied under Section 216 of the IT Act:
The Tribunal endorsed the CIT(A)'s deletion of the interest levied under Section 216. It agreed that the estimates filed by the assessee were based on the data available at the time and justified by unforeseen factors such as cost reimbursement and partial decontrol of steel prices. The Tribunal referenced the Allahabad High Court decision in CIT vs. ELGIN MILLS CO LTD (1980) 123 ITR 712 (A) to support its conclusion. This ground was rejected.

Conclusion:
The appeal filed by the Revenue was dismissed in its entirety, with all grounds decided in favor of the assessee.

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