1979 (4) TMI 57 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest under Section 139(8) of the IT Act.
2. Disallowance of expenditure on tea, coffee, and refreshments.
3. Disallowance of expenditure on building repairs.
4. Classification of income from property versus business income.

Detailed Analysis:

1. Levy of Interest under Section 139(8) of the IT Act:
The assessee's cross-objection was regarding the AAC's refusal to entertain the ground against the levy of interest under Section 139(8). The AAC had not entertained this ground, believing no appeal lay against the charging of interest. However, the Tribunal noted that the Andhra Pradesh High Court in the case of Dr. S. Roopkaran had ruled that when an appeal before the AAC includes other aspects of the assessment, the ground against the charging of interest is entertainable. Respectfully following this decision, the Tribunal set aside the AAC's refusal and restored the appeal for a decision on merits on this ground.

2. Disallowance of Expenditure on Tea, Coffee, and Refreshments:
The Department's appeal contested the AAC's decision to allow a deduction for expenditure on tea, coffee, and refreshments amounting to Rs. 8,411, which the ITO had disallowed as entertainment expenditure. The AAC, following the Gujarat High Court's decision in CIT vs. Patel Bros. & Co. Ltd., held that such expenditure was not entertainment but was allowable as a business expense. The Tribunal acknowledged the differing judicial opinions on this issue but followed the Andhra Pradesh High Court's ruling in Addl. CIT vs. Maddi Venkataratnam & Co., which allowed such expenses as business deductions. Consequently, the Tribunal upheld the AAC's decision.

3. Disallowance of Expenditure on Building Repairs:
The Department's appeal also challenged the AAC's deletion of a Rs. 2,041 disallowance from the total Rs. 10,211 claimed by the assessee for building repairs. The ITO had apportioned 1/5th of the expenditure to the repairs of sheds at the Craftsmen's Guild at Mallepalli and disallowed it, treating it as non-business expenditure. The AAC, however, held that the receipts from the Craftsmen's Guild were business income and that the entire expenditure on building repairs was deductible as business expenditure. The Tribunal agreed with the AAC's finding, noting that even if a portion of the expenditure related to the Guild's sheds, it was allowable as business expenditure. Therefore, the AAC's deletion of the disallowance was justified.

4. Classification of Income from Property versus Business Income:
The primary issue in the Department's appeal was the classification of Rs. 1,07,300 in receipts as business income rather than income from property. The ITO had assessed these receipts under the head "income from property," while the AAC had reversed this decision, treating them as business income. The Tribunal examined the nature of the receipts and the activities of the assessee, the Andhra Pradesh Small Scale Industries Development Corporation, which was incorporated to promote small scale industries.

The Tribunal noted that the assessee's activities, including the construction of sheds and provision of facilities to craftsmen, were in furtherance of its business objectives. The receipts in question were from the Craftsmen's Guild at Mallepalli, a building let to Andhra Bank, and unelectrified sheds at Balanagar Industrial Estate. The Tribunal found that these activities were not mere property letting but involved complex operations and services integral to the assessee's business of promoting small scale industries. Citing the Supreme Court's decision in Karnani Properties Ltd. vs. CIT, the Tribunal concluded that the income from these activities was assessable as business income under Section 28 of the IT Act.

Conclusion:
The Tribunal dismissed the Department's appeal and allowed the assessee's cross-objection in part. The AAC's decisions on the various grounds were upheld, recognizing the assessee's activities as business operations and allowing the related expenditures and income classifications accordingly.