1996 (10) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 2,000 on account of fire fighting charges under section 24(1)(ii) of the Income-tax Act, 1961.
2. Interpretation of the terms "premium" and "insure" under section 24(1)(ii).

Detailed Analysis:

1. Disallowance of Rs. 2,000 on account of fire fighting charges under section 24(1)(ii) of the Income-tax Act, 1961:

The assessee claimed a deduction of Rs. 2,000 for fire fighting charges under section 24(1)(ii) of the Income-tax Act, 1961, which was disallowed by the Assessing Officer (AO). The AO argued that the amount paid could not be considered as a premium related to an insurance contract. The CIT(A) upheld this decision, stating that the expenditure was capital in nature and did not fall under section 24(1)(ii). The CIT(A) also mentioned that even if the expenditure were considered under 'Repairs,' only 1/6th could be allowed, and no further relief could be granted.

The assessee contended that the expenditure was for ensuring safety against fire risk and should be considered as an insurance premium. The assessee argued that the term 'premium' should be interpreted broadly to include payments ensuring protection against risk, not limited to insurance contracts. The assessee cited the Supreme Court decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 to support a liberal interpretation in favor of the taxpayer. It was also noted that similar deductions were allowed for co-owners.

The Departmental Representative countered that the payment did not constitute a premium as there was no insurance contract. The payment was a one-time charge for fire safety measures, not a periodic premium, and did not entitle the assessee to compensation in case of damage.

2. Interpretation of the terms "premium" and "insure" under section 24(1)(ii):

The tribunal examined the definitions of "premium" and "insure." The Living Webster Encyclopaedic Dictionary defined "premium" as the amount paid for an insurance contract and "insure" as guaranteeing against risk. The tribunal concluded that the payment for fire safety measures did not qualify as a premium for insurance against property damage, as it did not entitle the assessee to compensation for any damage.

Despite this, the tribunal allowed the deduction considering the small amount involved and the fact that similar deductions were allowed for co-owners. However, the Accountant Member disagreed, stating that the amount's smallness and previous allowances to co-owners should not influence the decision. The Accountant Member emphasized that the tribunal's decision should be based strictly on legal provisions, not on the quantum involved or previous allowances.

Third Member's Opinion:

Due to the difference in opinion, the matter was referred to a Third Member. The Third Member agreed that the term "premium" should be interpreted broadly to include payments ensuring property protection against risk, not limited to insurance contracts. The Third Member noted that the payment was for fire safety measures and aimed at protecting the property against fire risk, thus qualifying for deduction under section 24(1)(ii). The Third Member also emphasized the importance of consistency in tribunal decisions, especially when similar deductions were allowed for co-owners, and supported the view that the deduction should be allowed to the assessee.

Conclusion:

The tribunal, by majority view, allowed the deduction of Rs. 2,000 for fire fighting charges under section 24(1)(ii) of the Income-tax Act, 1961, emphasizing a broader interpretation of the terms "premium" and "insure" and the need for consistency in tribunal decisions.