2006 (4) TMI 216 - AT - Income Tax

Issues Involved:
1. Valuation of shares for capital gains.
2. Expenditure on advertisement inviting deposits.
3. Depreciation on Bio-Gas Generating System.
4. Depreciation on Boiler Ammonia Plant and other equipment.
5. Allowability of guest house expenses.
6. Allowability of research fee expenses.

Issue-wise Detailed Analysis:

1. Valuation of Shares for Capital Gains:
The central issue in ITA No. 119/Mds./99 for the assessment year 1991-92 was the valuation of Tata Tea Ltd. shares for capital gains. The Assessing Officer valued the shares at the market rate of Rs. 320 on the date of exchange. However, the first Appellate authority directed the valuation at the face value of Rs. 147, referencing the Madras High Court judgment in AR. Alagappa Chettiar v. ITO [2004] 267 ITR 749. The Tribunal followed this precedent and directed the Assessing Officer to adopt Rs. 147 per share for capital gains computation.

2. Expenditure on Advertisement Inviting Deposits:
In ITA Nos. 120, 121, and 122/Mds./99, the issue was whether the expenditure on advertisement inviting deposits was revenue or capital expenditure. The first Appellate authority allowed it as revenue expenditure, citing statutory requirements under the Reserve Bank of India and Companies Act. The Tribunal upheld this view, distinguishing it from the Supreme Court judgment in Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798, which dealt with capital expenditure for raising capital through shares. The Tribunal referenced the Madras High Court's decision in CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 (Mad.), confirming the expenditure as revenue in nature.

3. Depreciation on Bio-Gas Generating System:
For assessment years 1993-94 and 1994-95 (ITA Nos. 120 and 122/Mds./99), the issue was the allowability of depreciation on Bio-Gas Generating Systems leased back to Western Paques India Ltd. The Assessing Officer disallowed it, doubting the installation and use of the systems. The Tribunal, however, found the transactions genuine, noting that the systems were put to use in the assessee's leasing business upon handing over to the lessee. The Tribunal relied on the Orissa High Court's judgment in Industrial Development Corporation of Orissa Ltd. v. CIT [2004] 268 ITR 130, emphasizing the legitimacy of the lease transactions.

4. Depreciation on Boiler Ammonia Plant and Other Equipment:
In ITA No. 123/Mds./99, the issues revolved around depreciation claims on various assets, including a Boiler Ammonia Plant, Solar-Power Rural Radio Telephone System, Waste Heat Recovery Equipment, Wind Electric Generator, and Rolling Mills Rolls. The Tribunal upheld the depreciation claims for all assets except Rolling Mills Rolls, where it remanded the issue to the Assessing Officer for verification. The Tribunal relied on the genuineness of sale and lease-back transactions, referencing the Special Bench decision in Mid East Portfolio Management Ltd. v. Dy. CIT [2003] 87 ITD 537 (Mum.) and the Orissa High Court judgment in Industrial Development Corporation of Orissa Ltd.

5. Allowability of Guest House Expenses:
The Tribunal disallowed guest house expenses, concluding they were not business expenditures under section 37(4) of the Income-tax Act, thus reversing the first Appellate authority's decision.

6. Allowability of Research Fee Expenses:
The Tribunal remanded the issue of research fee expenses to the Assessing Officer for reconsideration, noting the violation of rule 46A of the Income-tax Rules, 1962, as the first Appellate authority admitted additional evidence without proper procedure.

Conclusion:
- ITA Nos. 120, 121, and 122/Mds./99 were dismissed.
- ITA Nos. 119 and 123/Mds./99 were partly allowed, with specific issues remanded for further verification.

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