1987 (11) TMI 128 - AT - Income Tax

Issues Involved:
1. Depreciation on bottles and shells.
2. Investment allowance.
3. Taxability of compensation received from Coca Cola Export Corporation.
4. Alternative claim for loss on breakage of bottles and shells.
5. Investment allowance on power capacitors.
6. Charging of interest under sections 139 and 215 of the Income Tax Act.
7. Departmental appeal regarding bottles and shells as part of plant and machinery.

Detailed Analysis:

1. Depreciation on Bottles and Shells:
The primary issue was whether bottles and shells constitute plant and machinery, thereby qualifying for depreciation. The Income Tax Officer (ITO) initially denied any depreciation, considering them as mere packing material. However, the CIT(A) allowed a 10% depreciation based on earlier Tribunal decisions, despite being doubtful about their classification as plant and machinery. The Tribunal upheld the CIT(A)'s decision, maintaining uniformity with previous years where only 10% depreciation was allowed.

2. Investment Allowance:
The assessee claimed investment allowance on the basis that bottles and shells were part of the machinery. The CIT(A) rejected this on the grounds that the products contained blended flavoring concentrates, which were listed in the 11th Schedule of the Income Tax Act. However, the Tribunal admitted new evidence (a letter from the Indian Beverage Co.) and directed the ITO to reconsider the claim on its merits.

3. Taxability of Compensation from Coca Cola Export Corporation:
The assessee received compensation from Coca Cola Export Corporation for destroying bottles following a government ban on Coca Cola concentrate imports. The CIT(A) treated this compensation as revenue receipts taxable under section 41(2) of the Income Tax Act. The Tribunal upheld this view, noting that the compensation was directly related to the destruction of bottles, which were previously allowed as terminal loss. The dissenting opinion argued that the compensation should be considered a capital receipt, as it was for the closure of business, not directly related to the destruction of bottles.

4. Alternative Claim for Loss on Breakage of Bottles and Shells:
The assessee raised an alternative ground that if depreciation was not allowed, then loss on breakage should be considered. Since the CIT(A) had already allowed depreciation, this ground was dismissed as it did not arise from the CIT(A)'s order.

5. Investment Allowance on Power Capacitors:
The assessee claimed investment allowance on two power capacitors. The ITO had not allowed this claim due to lack of details. The Tribunal directed the ITO to reconsider this claim afresh, asking the assessee to furnish the necessary details.

6. Charging of Interest under Sections 139 and 215:
The assessee contested the charging of interest under sections 139 and 215, arguing that the original assessment order did not contain a direction for charging interest. The CIT(A) upheld the interest charge, citing that the demand notice sufficed for this purpose. The Tribunal agreed, stating that the demand notice is part and parcel of the assessment order. The ITO was directed to reconsider the issue afresh in light of the assessee's claim for investment allowance.

7. Departmental Appeal on Bottles and Shells as Plant and Machinery:
The department appealed against the CIT(A)'s decision to treat bottles and shells as part of plant and machinery. The Tribunal rejected the department's appeal, maintaining its earlier stance that bottles and shells are part of the machinery, thus eligible for depreciation.

Conclusion:
The Tribunal partly allowed the assessee's appeals for statistical purposes and dismissed the departmental appeals. The Third Member concurred with the Judicial Member's view that the compensation received from Coca Cola Export Corporation was taxable under section 41(2) of the Income Tax Act, as it was directly related to the destruction of bottles, thereby making it a revenue receipt. The matter was referred back to the regular Bench for final disposal in accordance with the majority opinion.

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