1991 (11) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 40C vs. Section 40A(5) for employee directors.
2. Perquisite value of chauffeur-driven car for disallowance under Section 40A(5).
3. Entitlement for weighted deduction under Section 35B.
4. Nature of development expenses as revenue or capital.
5. Entitlement for ESA on air-conditioning plant, lift, and kitchen equipment.
6. Classification of certain expenses as revenue or capital.
7. Entitlement for depreciation and investment allowance for plant and machinery at a new hotel.
8. Cross-objection regarding the applicability of Section 40A(5) vs. Section 40(c).
9. Disallowance of traveling expenses under Section 35B.
10. Disallowance of investment allowance under Section 32A.
11. Imposition of interest under Sections 139, 215, and 216.

Detailed Analysis:

1. Applicability of Section 40C vs. Section 40A(5) for Employee Directors:
The first ground of appeal by the Department for the year 1983-84 was that the CIT(A) erred in holding that the provision of Section 40C, and not Section 40A(5), is applicable in the case of employee directors. The Tribunal upheld the CIT(A)'s order, supporting it with the Special Bench decision reported in 3 SOT 40, and rejected the Department's appeal.

2. Perquisite Value of Chauffeur-Driven Car:
The Department contended that the CIT(A) erred in holding that the perquisite value of a chauffeur-driven car should be adopted based on the Rule under IT Rules for computing disallowance under Section 40A(5), instead of the actual expenses incurred by the assessee. The Tribunal reversed the CIT(A)'s order, restoring the ITO's valuation based on the actual expenses, citing the Bombay High Court decision in Bombay Burmah Trading Corpn. vs. CIT.

3. Entitlement for Weighted Deduction under Section 35B:
The Department argued that the CIT(A) erred in granting weighted deduction under Section 35B, as the assessee, a hotel company, had nothing to export. The Tribunal upheld the CIT(A)'s order, noting that a similar claim had been allowed in the assessee's case for the assessment year 1982-83, except for a sum of Rs. 55,050 related to foreign travel expenses of certain employees, which was not allowed.

4. Nature of Development Expenses:
The Department challenged the CIT(A)'s decision that Rs. 3,45,000 being development expenses were revenue in nature. The Tribunal upheld the CIT(A)'s findings that the amount was part of the Rs. 10,60,000 allowed as development expenses in the assessment year 1982-83 and was not claimed as an expenditure in the Revenue account.

5. Entitlement for ESA on Air-Conditioning Plant, Lift, and Kitchen Equipment:
The Department contended that the CIT(A) erred in holding that the assessee was entitled to ESA on air-conditioning plant, lift, and kitchen equipment. The Tribunal upheld the CIT(A)'s order, noting that a similar claim had been allowed by the Tribunal for the assessment year 1976-77.

6. Classification of Certain Expenses as Revenue or Capital:
The Department argued that the CIT(A) erred in holding that expenses for repairs to cold storage plant, re-routing of cables, and replacement of switches were revenue expenses. The Tribunal upheld the CIT(A)'s order, stating that the expenses were for repairs and replacements to restore the efficiency of the plant and machinery, and did not result in the creation of an asset of an enduring nature.

7. Entitlement for Depreciation and Investment Allowance for Plant and Machinery at a New Hotel:
The Department contended that the CIT(A) erred in holding that the assessee was entitled to depreciation and investment allowance for plant and machinery at Hotel Taj Residency, Bangalore. The Tribunal upheld the CIT(A)'s order, noting that the business was set up and ready to commence operations, supported by various certificates and evidence produced by the assessee.

8. Cross-Objection Regarding Applicability of Section 40A(5) vs. Section 40(c):
The assessee's cross-objection argued that the CIT(A) erred in holding that Section 40A(5) would apply instead of Section 40(c) for employee directors. The Tribunal agreed with the assessee, citing the Tribunal's decision reported in 3 SOT 40.

9. Disallowance of Traveling Expenses under Section 35B:
The assessee's cross-objection against the disallowance of traveling expenses for certain employees under Section 35B was rejected by the Tribunal. The Tribunal upheld the CIT(A)'s view that the foreign tour appeared to be a study tour and did not contribute to export promotion.

10. Disallowance of Investment Allowance under Section 32A:
The Tribunal noted that an identical issue had been referred back to the CIT(A) for de novo adjudication for the assessment year 1982-83. The Tribunal referred the matter back to the AO for re-decision after considering the assessee's submissions.

11. Imposition of Interest under Sections 139, 215, and 216:
The assessee's cross-objection against the imposition of interest under Sections 139, 215, and 216 was allowed for consequential relief, directing the AO to allow the same.

Conclusion:
The appeals by the Department and the cross-objection by the assessee were allowed in part, with the Tribunal upholding certain findings of the CIT(A) and reversing others based on the evidence and legal precedents presented.