1982 (6) TMI 83 - AT - Income Tax

Summary

Issues: Appeal against initial depreciation on meters, treatment of legal expenses for Indianisation, levy of interest under s. 216

Initial Depreciation on Meters:
The appeal by the Revenue challenged the CIT(A)'s decision to allow initial depreciation on meters installed at consumers' premises. The ITO had disallowed the depreciation, stating the meters did not aid in electricity generation or distribution but were merely for measuring power consumption. However, the CIT(A) deemed the meters essential for the electricity business and directed the ITO to allow initial depreciation. During the hearing, the assessee's counsel acknowledged the previous deduction under the IT Act for the meter costs, making the CIT(A)'s direction unnecessary. The ITAT found the claim inadmissible under s. 34(2) as the total deduction cannot exceed the asset's actual cost to the assessee. Since the ITO had already allowed the deduction at cost, the Revenue's ground was considered valid and accepted.

Legal Expenses for Indianisation:
The second ground involved legal expenses of Rs. 48,558 incurred for Indianisation, treated as revenue expenditure by the CIT(A) but disallowed by the ITO as capital expenditure. The CIT(A) believed the expenses did not result in a capital asset and, citing the Gotan Lime Syndicate case, argued that even if the expense had lasting benefits, it need not be of capital nature. The ITAT noted the Madras High Court decision supporting revenue expenditure for legal expenses related to amalgamation approval. Following the Supreme Court's criteria in Malayalam Plantations Ltd., the ITAT found the expenses necessary for the business and not for acquiring enduring capital assets. Referring to a case involving legal fees for statutory compliance, the ITAT upheld the CIT(A)'s decision, supported by a similar ruling in Hagward Waldia Refinery Ltd.

Levy of Interest under s. 216:
The third ground concerned the ITO's levy of interest under s. 216 for alleged underestimation of advance tax, later deleted by the CIT(A). The assessee initially estimated a lower income and tax, revising it after a government-approved rate increase. The ITO claimed the initial estimate was knowingly understated, leading to less advance tax payment. However, the CIT(A) ruled in favor of the assessee, stating the revised estimate was based on the approved rate revision and not an intentional underestimation. The ITAT agreed, emphasizing that the assessee could not have foreseen the rate increase and only adjusted the estimate after the government's approval. Consequently, the levy of interest under s. 216 was deemed unjustified, and the appeal was partly allowed.