1992 (8) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of rental income from Allahabad property.
2. Disallowance of charitable contributions.
3. Disallowance under Section 40A(9) for contributions to hospitals.
4. Disallowance of extra shift allowance on buildings.
5. Disallowance of investment allowance on jeeps and motor cycles.
6. Addition of liabilities written back under Section 41(1).

Detailed Analysis:

1. Assessment of Rental Income from Allahabad Property
The primary issue was whether the rental income from the Allahabad property should be assessed under 'Income from House Property' or 'Business Income'. The Assessing Officer added Rs. 35,250 to the rental income shown by the assessee, based on an estimated interest of 15% on an interest-free advance of Rs. 2,35,000. The CIT(A) confirmed this addition.

The assessee contended that the property was previously used for business and was rented out for business purposes, making the rental income incidental to the main business of tea manufacturing. The Tribunal, consistent with its earlier decision, ruled in favor of the assessee, stating the rental income should be assessed as 'Business Income' and normal depreciation should be allowed. The annual rental value was set at Rs. 3,000 as disclosed by the assessee.

2. Disallowance of Charitable Contributions
The assessee challenged the disallowance of Rs. 1,133 paid to various charitable and social organizations. The Tribunal had previously ruled such expenditures as business expenses in similar cases.

Given the absence of distinguishing features in the current appeal, the Tribunal decided in favor of the assessee, allowing the contributions as business expenditure.

3. Disallowance under Section 40A(9) for Contributions to Hospitals
The assessee contested the partial disallowance of Rs. 12,52,000 out of Rs. 13,51,133 contributed to two hospitals. The assessee argued that the contributions were mandated by the Assam Plantation Labour Act, 1951, and thus should be deductible under Sections 28 and 37 of the IT Act.

The Tribunal noted that Section 40A(9) has two parts: the first part prohibits deductions for contributions to any fund or trust, while the second part allows exceptions if required by law. Since the hospitals were established under the Plantations Labour Act, the contributions qualified for deduction. The Tribunal, referencing the case of India Pistons Repco Ltd. vs. IAC, ruled in favor of the assessee, reversing the CIT(A)'s order.

4. Disallowance of Extra Shift Allowance on Buildings
The assessee appealed against the disallowance of extra shift allowance on buildings. The Tribunal had previously ruled in favor of the assessee on this issue for earlier assessment years.

With no new distinguishing features presented, the Tribunal decided in favor of the assessee, reversing the CIT(A)'s order.

5. Disallowance of Investment Allowance on Jeeps and Motor Cycles
The assessee challenged the disallowance of investment allowance on jeeps and motor cycles, arguing they were not road transport vehicles.

The Tribunal, consistent with its earlier decision, ruled in favor of the assessee, reversing the CIT(A)'s order.

6. Addition of Liabilities Written Back under Section 41(1)
The authorities added Rs. 69,764 under Section 41(1), citing unilateral write-back of liabilities. The CIT(A) noted a lack of evidence for these liabilities.

The assessee argued that the write-back did not constitute income as there was no cessation of liabilities. The Tribunal, referencing the Calcutta High Court decision in CIT vs. Sugali Sugar Works (P) Ltd., agreed that unilateral write-back without cessation does not constitute income under Section 41(1). The Tribunal ruled in favor of the assessee, reversing the CIT(A)'s order.

Conclusion
The appeal by the assessee was allowed, with the Tribunal ruling in favor of the assessee on all contested grounds.