1986 (10) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance computation under section 40A(5) of the Income-tax Act, 1961.
2. Entitlement to investment allowance for machinery leased out.
3. Entitlement to depreciation at 100% for bottles treated as 'plant'.

Issue-Wise Detailed Analysis:

1. Disallowance Computation under Section 40A(5):

The revenue contended that the Commissioner (Appeals) erred in excluding certain payments from disallowance computation under section 40A(5) of the Income-tax Act, 1961. These payments included electricity charges (Rs. 3,826), salary paid to servants (Rs. 2,790), personal accident insurance premia (Rs. 550), and club subscription (Rs. 1,080). The Commissioner (Appeals) had followed his decision from the previous year, allowing the assessee's claim that these amounts should not be treated as perquisites.

The Tribunal agreed that personal accident insurance premia and club subscriptions should not be treated as perquisites, referencing the decisions in CIT v. Amco Batteries Ltd. [1984] 150 ITR 48 and State Bank of India v. IAC [1985] 13 ITD 550 (Cal.). However, for electricity charges and salary paid to servants, the Tribunal referred to decisions in Blackie & Sons (India) Ltd. v. ITO [1983] 3 SOT 72 (Bom.) and Glaxo Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 (Bom.), concluding that these payments should be considered for disallowance under section 40A(5). Thus, the order of the Commissioner (Appeals) was reversed regarding electricity charges and salary paid to servants.

2. Entitlement to Investment Allowance for Machinery Leased Out:

The revenue contested the Commissioner (Appeals)'s decision that the assessee was entitled to investment allowance for machinery leased out. Both parties agreed that this issue was covered by the Tribunal's decision for the preceding year (1980-81), which followed the decision in ITO v. First Leasing Co. of India Ltd. [1985] 13 ITD 234 (Mad.) (SB). The Tribunal upheld the Commissioner (Appeals)'s order allowing the assessee's claim for investment allowance on the leased machinery, following the earlier orders.

3. Entitlement to Depreciation at 100% for Bottles Treated as 'Plant':

The Commissioner (Appeals) had allowed the assessee's claim for treating bottles as 'plant' and granted 100% depreciation under the first proviso to section 32(1)(ii) of the Act. The revenue argued that bottles, being containers, should not be considered 'plant' and are subject to breakages, thus not entitled to depreciation for wear and tear. They cited the Madras High Court decision in CIT v. Tamil Murasu Publishers (P.) Ltd. [TC No. 30 (Mad.) of 1979].

The Tribunal, however, noted that courts have given a wide interpretation to 'plant,' including any article used by a businessman for carrying on business. They referenced the Hyderabad Bench decision in Sri Krishna Bottles (P.) Ltd. and the Delhi High Court's interpretation in CIT v. National Air Products Ltd. [1980] 126 ITR 196, which included gas cylinders as 'plant.' The Tribunal held that the bottles used by the assessee in its leasing business constituted 'plant.'

However, the Tribunal did not agree with the artificial segregation of each bottle as a separate plant for 100% depreciation. They emphasized that the assessee purchased and leased out bottles in bulk, and the value of each bulk purchase exceeded Rs. 750. Following the Madras High Court's reasoning in Tamil Murasu Publishers (P.) Ltd., the Tribunal concluded that while the assessee is entitled to normal depreciation, it is not entitled to 100% depreciation under the first proviso to section 32(1)(ii). Thus, the appeal was partly allowed.