1989 (6) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Investment Allowance u/s 32A on Xerox and Photocopying Machines.
2. Disallowance of Motor Car Expenses.

Summary:

1. Investment Allowance u/s 32A on Xerox and Photocopying Machines:
The primary issue was whether the assessee was entitled to investment allowance u/s 32A of the Income-tax Act, 1961, on Xerox and photocopying machines for the assessment years 1982-83 and 1983-84. This issue had previously been decided against the assessee by another Bench of the Tribunal for earlier assessment years. However, a conflicting view was taken in another case, necessitating the constitution of a larger Bench to resolve the conflict.

The Tribunal considered the nature of the assessee's business, which involved large-scale photocopying and printing using various high-tech machines. The assessee argued that their activity amounted to "production of an article or thing" and thus qualified for investment allowance. The Tribunal agreed, referencing the Gujarat High Court's decision in CIT v. Ajay Printery (P.) Ltd. and other relevant case law, concluding that the assessee's activity resulted in the production of an article or thing, not listed in the Eleventh Schedule, and therefore, the assessee was entitled to investment allowance.

The Tribunal also addressed whether the machines in question could be considered "office appliances" under the proviso to sec. 32A(1). It was determined that the machines were used for commercial purposes and not merely as office appliances, thus qualifying for investment allowance.

2. Disallowance of Motor Car Expenses:
The second issue concerned the disallowance of motor car expenses incurred by the assessee on cars owned by its directors but used for business purposes. The ITO had disallowed a portion of these expenses attributing them to personal use by the directors. The assessee argued that these amounts should be considered as benefits to the directors and thus disallowed u/s 40(c) of the Act, rather than u/s 37(1).

The Tribunal noted a conflict in earlier decisions on this issue. After considering the circumstances, it concluded that the expenses were incurred wholly and exclusively for business purposes and should be disallowed u/s 40(c), not u/s 37(1). The Tribunal directed the ITO to include the disallowed amounts in the computation for disallowance u/s 40(c).

Conclusion:
The appeals were allowed, granting the assessee investment allowance on the Xerox and photocopying machines u/s 32A and directing the ITO to compute the disallowance of motor car expenses u/s 40(c) of the Act.