1992 (2) TMI 136 - AT - Income Tax

Summary

Issues involved:
1. Assessment of repair and replacement charges under the head 'Machinery Maintenance' as capital or revenue expenditure.
2. Disallowance of bonus payment exceeding 20% as business expenditure under section 37.

Detailed analysis:
1. The judgment concerns appeals by the assessee and the revenue regarding the assessment years 1982-83 and 1983-84. The primary issue in the assessee's appeal for 1983-84 is the disallowance of expenditure claimed as repair and replacement charges under 'Machinery Maintenance' in the Profit and Loss Account. The Income-tax Officer disallowed a significant amount of expenditure, considering it as capital in nature. The assessee argued that the machinery in question was an integral part of the sugar plant and that the repairs and replacements were necessary to maintain the operational efficiency of the plant. The tribunal agreed with the assessee, emphasizing that the repairs were essential to keep the machinery operational and did not result in any enduring benefit. Citing legal precedents, the tribunal held that the repairs were revenue in nature and not capital, overturning the decision of the CIT (A) and allowing the assessee's appeal on this issue.

2. The appeals by the revenue revolve around the disallowance of bonus payments exceeding 20% of wages and salary as business expenditure under section 37. The revenue contested the allowance of bonus payments exceeding the prescribed limit, arguing that the payments were excessive and not in line with statutory provisions. However, the tribunal noted that the payments were made based on settlements with employees and customary practices. Referring to legal precedents, including a decision by the Hon'ble Kerala High Court and the Supreme Court, the tribunal upheld the decision of the CIT (A) to allow the bonus payments as business expenditure. The tribunal ruled that bonus payments exceeding 20% as per agreements could be allowed, and all conditions under section 36(1)(ii) need not be strictly satisfied for granting such deductions. Consequently, the tribunal decided against the revenue on this issue, affirming the allowance of bonus payments exceeding the statutory limit.