1997 (9) TMI 150 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of entertainment tax realized by the assessee.
2. Assessability of income from rent and service charges in respect of the bank portion of the building.
3. Evaluation of the written down value of the cinema portion for depreciation purposes.
4. Disallowance of travelling and conveyance expenses.
5. Disallowance of directors' remuneration.
6. Disallowance of repair and maintenance expenses.
7. Addition on account of interest-free advance to sister concern.
8. Disallowance of additional travelling and conveyance expenses.

Summary:

1. Taxability of Entertainment Tax:
The primary issue was whether the entertainment tax collected by the assessee should be considered as part of trading receipts and thus taxable. The assessee argued that the tax collected was under a scheme by the U.P. Government, which provided grant-in-aid linked with the entertainment tax, making it a subsidy and not income. The Assessing Officer treated it as trading receipt based on Supreme Court decisions. The Tribunal concluded that the entertainment tax collected was a revenue receipt but allowed the deduction u/s 43B of the Act, considering the payment method prescribed by the State authority, resulting in no net effect on income.

2. Assessability of Income from Rent and Service Charges:
The assessee contended that income from the bank portion of the building should be taxed under "Profits & Gains of Business" due to the commercial nature of the entire structure. The Tribunal upheld the Assessing Officer's decision to tax the rent under "property" and service charges under "other sources," as the property was let out for earning rent, not as a business activity.

3. Evaluation of Written Down Value for Depreciation:
The assessee argued for apportioning the entire building's cost between the cinema and the bank based on construction costs for depreciation purposes. The Tribunal found merit in this argument and directed the Assessing Officer to apportion the cost accordingly.

4. Disallowance of Travelling and Conveyance Expenses:
For the assessment year 1986-87, the assessee contested the disallowance of Rs. 7,000 out of travelling and conveyance expenses, arguing the total expenses claimed were only Rs. 4,423. The Tribunal deleted the disallowance as the revenue authorities did not verify the facts.

5. Disallowance of Directors' Remuneration:
For assessment year 1988-89, the assessee challenged the disallowance of Rs. 40,000 out of directors' remuneration, arguing that the period consisted of 18 months, and salaries remained the same as in the earlier year. The Tribunal deleted the addition, noting no increase in monthly salaries.

6. Disallowance of Repair and Maintenance Expenses:
The Tribunal deleted the disallowance of Rs. 3,139 made out of repair and maintenance expenses for the cinema building, as the expenses were for pump repair and other parts, qualifying as repair of plant.

7. Addition on Account of Interest-Free Advance to Sister Concern:
The assessee contended that no funds were borrowed during the year, and the advance to the sister concern was from interest-free funds. The Tribunal found no evidence of a direct nexus with borrowed funds and deleted the addition of Rs. 9,900.

8. Disallowance of Additional Travelling and Conveyance Expenses:
For assessment year 1988-89, the Tribunal reduced the disallowance of Rs. 15,000 out of travelling and conveyance expenses to Rs. 5,000, considering substantial expenses on print bills.

Conclusion:
Both appeals were partly allowed, with several disallowances deleted or reduced, and directions given for proper evaluation and apportionment of costs for depreciation purposes.