1995 (4) TMI 87 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation and investment allowance on poultry shed.
2. Extra shift allowance (ESA) on poultry shed, fencing, well, and water-tank.
3. Reduction of cost of assets by subsidy amount while working out depreciation.
4. Disallowance of expenditure on staff and guests.
5. Entertainment expenses.

Issue-wise Detailed Analysis:

1. Depreciation and Investment Allowance on Poultry Shed:
The primary issue in all four appeals was whether the poultry shed should be treated as a "plant" for the purposes of depreciation and investment allowance. The assessee argued that the poultry shed, due to its specific design and functionality tailored to hatchery operations, should be considered a plant. The Tribunal referred to various judicial precedents, including the definition of "plant" under section 43(3) of the Income-tax Act, and concluded that the poultry shed and water-line sheds are in the nature of a plant. Consequently, depreciation and investment allowance should be allowed on these structures treating them as plant. However, the claim for water-line in residential quarters was not pressed by the assessee.

2. Extra Shift Allowance (ESA) on Poultry Shed, Fencing, Well, and Water-tank:
The assessee claimed ESA on fencing, well, water-tank, and poultry shed for different assessment years. The Tribunal noted that the Assessing Officer had previously treated fencing as part of the plant and allowed depreciation accordingly. The Tribunal referred to the CBDT circular, which states that ESA should be allowed on a concern basis rather than on the number of days each plant worked double or triple shifts. Therefore, the Tribunal concluded that ESA should be allowed on the poultry shed, fencing, water-tank, and well for the assessment years 1983-84, 1984-85, and 1985-86.

3. Reduction of Cost of Assets by Subsidy Amount While Working Out Depreciation:
In the assessment year 1983-84, the Assessing Officer had reduced the cost of assets by the subsidy amount of Rs. 4,20,085 while calculating depreciation. The Tribunal referred to the Supreme Court decision in CIT v. P.J Chemicals Ltd. [1994] 210 ITR 830, which clarified that the cost of assets should not be reduced by the amount of subsidy while allowing depreciation. Therefore, the assessee's claim was allowed, and the cost of assets was not reduced by the subsidy amount.

4. Disallowance of Expenditure on Staff and Guests:
For the assessment year 1984-85, the Assessing Officer disallowed Rs. 900 out of the total expenditure of Rs. 1,800 on staff and guests. The Tribunal found no justification for the 50% disallowance and noted that expenditure could be allowed up to a ceiling limit of Rs. 5,000. Therefore, the Tribunal deleted the disallowance, allowing the entire expenditure claimed by the assessee.

5. Entertainment Expenses:
In the assessment year 1985-86, the ground relating to entertainment expenses was not pressed by the assessee's counsel during the hearing. Consequently, this ground was rejected by the Tribunal.

Conclusion:
All four appeals were partly allowed. The Tribunal ruled in favor of the assessee on the issues of depreciation and investment allowance on poultry sheds, ESA on poultry shed, fencing, well, and water-tank, and the disallowance of expenditure on staff and guests. The issue of entertainment expenses was not pressed and thus rejected.