1986 (4) TMI 104 - AT - Income Tax

Issues Involved:
1. Allowance of travelling expenditure
2. Payment of technical know-how fees
3. Allowance of advertisement charges
4. Allowance of miscellaneous expenses
5. Depreciation on machinery installed in other premises
6. Retainership fees paid to tax consultants
7. Allowance of excise duty liability
8. Treatment of cash allowance as salary or perquisites
9. Development rebate on machinery
10. Depreciation on plant and machinery
11. Set off of deficiency u/s 80J
12. Separate industrial undertakings u/s 80J
13. Treatment of security deposits as income

Summary:

1. Allowance of Travelling Expenditure:
The assessee, a public limited company, claimed Rs. 6,37,991 as travelling expenditure, out of which Rs. 2,38,067 was disallowed by the ITO as capital expenditure. The Commissioner (Appeals) found that the expenditure was for earning revenue income and not for establishing a new factory. The Tribunal upheld the Commissioner (Appeals)'s view, confirming the expenditure as revenue in nature.

2. Payment of Technical Know-How Fees:
The assessee paid Rs. 30,57,499 to Tecnimont, SPA Italy, and Rs. 3,48,033 to IWKA, West Germany, for technical know-how. The ITO treated these payments as capital expenditure. The Commissioner (Appeals) held that the payments were for the efficient running of the business and were of revenue nature. The Tribunal upheld this view, distinguishing it from cases where the expenditure was for acquiring an asset of enduring nature.

3. Allowance of Advertisement Charges:
The assessee paid Rs. 10 lakhs to the All India Congress Committee for advertisement in their souvenir. The ITO disallowed this as a donation. The Commissioner (Appeals) allowed it as advertisement expenditure, supported by the CBDT Circular No. 200. The Tribunal confirmed this view, recognizing it as a legitimate business expenditure.

4. Allowance of Miscellaneous Expenses:
The Commissioner (Appeals) allowed Rs. 4,777 incurred by employees for business purposes, which the ITO had disallowed. The Tribunal upheld the Commissioner (Appeals)'s finding that these expenses were for the company's business.

5. Depreciation on Machinery Installed in Other Premises:
The Commissioner (Appeals) allowed 50% depreciation on machinery installed in the premises of J. K. Cotton Mfg. & Spg. Mills Ltd. and Plastic Products Ltd., following an earlier Tribunal order. The Tribunal confirmed this allowance.

6. Retainership Fees Paid to Tax Consultants:
The Commissioner (Appeals) allowed Rs. 56,500 paid as retainership fees to tax consultants, ruling it outside the scope of section 80VV. The Tribunal upheld this view, noting that the payments were not for any specific proceedings before tax authorities.

7. Allowance of Excise Duty Liability:
The Commissioner (Appeals) allowed Rs. 12,72,762 as excise duty liability, despite the Rajasthan High Court's decision in favor of the assessee, as the Supreme Court had admitted a special leave petition. The Tribunal upheld this decision, allowing the deduction under the mercantile system.

8. Treatment of Cash Allowance as Salary or Perquisites:
The Commissioner (Appeals) treated cash allowances as part of salary, not perquisites, for disallowance u/s 40A(5). The Tribunal confirmed this view, following its earlier decision in the assessee's favor.

9. Development Rebate on Machinery:
The Commissioner (Appeals) allowed a development rebate of 25% on machinery installed in the FEM Division, which the ITO had limited to 15%. The Tribunal upheld this allowance, agreeing with the Commissioner (Appeals)'s interpretation.

10. Depreciation on Plant and Machinery:
The Tribunal confirmed the Commissioner (Appeals)'s allowance of 15% depreciation on plant and machinery of synthetic staple fibres and nylon chord divisions, following its earlier decision in the assessee's favor.

11. Set Off of Deficiency u/s 80J:
The Tribunal upheld the Commissioner (Appeals)'s decision to allow the set-off of deficiency u/s 80J from earlier years, following its previous ruling in the assessee's favor.

12. Separate Industrial Undertakings u/s 80J:
The Tribunal confirmed the Commissioner (Appeals)'s decision treating FEM and Cement Division as separate industrial undertakings for relief u/s 80J, noting the ITO's acceptance of this view for the assessment year 1975-76.

13. Treatment of Security Deposits as Income:
The Tribunal upheld the Commissioner (Appeals)'s decision that security deposits received for cops were not income, following its earlier ruling in the assessee's favor.

Conclusion:
The appeal filed by the revenue was dismissed, and the Tribunal confirmed the comprehensive and well-reasoned order of the Commissioner (Appeals) on all grounds.

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