1989 (12) TMI 103 - AT - Income Tax

Assessment Year, Business Expenditure, Industrial Undertaking, Previous Year, Profits And Gains

Summary

Issues Involved:
1. Eligibility for relief under Section 80J for a new printing machine.
2. Deduction of foreign and local travel expenses for individuals who are neither directors nor employees of the company.

Issue-wise Detailed Analysis:

1. Eligibility for Relief under Section 80J for a New Printing Machine:

The revenue objected to the relief under Section 80J granted by the CIT(A) for a new printing machine, arguing that it was not an independent industrial unit. The key objections were:
- No separate set of accounts maintained.
- The machine was just an addition to the existing production capacity.
- The same business of publishing continued with the new machine.

The CIT(A) allowed the relief, reasoning:
- Separate accounts were not necessary.
- The new machine was installed in a separate building with a separate power connection, indicating an independent unit.

The assessee argued that the new machine, Colour King Web Offset Press, was a technological marvel capable of performing multiple functions (printing, cutting, folding) and thus constituted an independent unit. The machine was housed in a new building with a separate power connection, and it operated on a different technology from the existing machines.

The Tribunal considered the following:
- Section 80J does not mandate maintaining separate accounts.
- The new unit must not be formed by splitting or reconstructing the existing business, must not use transferred machinery, must manufacture or produce articles, and must employ the required number of workers.
- The Colour King Web Offset Press met all these conditions, being a fully automated, integrated unit capable of producing the final product independently.

The Tribunal concluded that the new machine constituted a separate and independent industrial unit, satisfying all conditions under Section 80J. Therefore, the assessee was entitled to the relief of Rs. 62,220.

2. Deduction of Foreign and Local Travel Expenses:

The revenue objected to the deduction of travel expenses for Sh. Vishwanath and his wife, arguing they were neither directors nor employees but relatives of the directors.

The CIT(A) allowed the deductions, and the assessee argued:
- Business necessity and connection, not the relationship, should be the criterion for allowing expenses.
- Sh. Vishwanath was an expert in publishing, and his travel to England was necessary to resolve issues with the imported press, as advised by the suppliers.
- Sh. Vishwanath and his wife were joint guarantors for a loan for the imported press, necessitating their travel to Bombay for signing guarantee papers.

The Tribunal considered:
- The business connection and necessity for the local travel to Bombay were clearly established, justifying the deduction.
- Sh. Vishwanath's expertise and involvement with the company justified his travel to England for resolving technical issues with the press, despite not being a technical person himself.

The Tribunal upheld the CIT(A)'s decision, allowing the deductions for both local and foreign travel expenses, as the business necessity and connection were clearly established.

Conclusion:

The appeal by the revenue was dismissed, affirming the CIT(A)'s decisions on both issues:
1. The new printing machine was recognized as an independent industrial unit eligible for relief under Section 80J.
2. The travel expenses for Sh. Vishwanath and his wife were deemed deductible due to established business necessity and connection.