1991 (4) TMI 206 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of subsidy from the cost of assets for depreciation purposes.
2. Addition on account of guarantee commission.
3. Classification of expenditure on Combidan Mill as capital or revenue expenditure.
4. Addition of contingent deposits towards possible levy of sales tax on freight.

Detailed Analysis:

1. Reduction of Subsidy from the Cost of Assets for Depreciation Purposes:
The CIT(A) directed the Assessing Officer not to reduce the cost of assets by the cash subsidy received and to compute depreciation based on the gross figures. The Department objected to this, but the Tribunal upheld the CIT(A)'s order, citing the Madras High Court decision in Srinivasa Industries vs. CIT, which held that the subsidy for SIPCOT need not be deducted from the cost of assets while computing depreciation.

2. Addition on Account of Guarantee Commission:
The CIT(A) deleted the addition on account of payment guarantee commission, relying on the Madras High Court decisions in Sivakami Mills Ltd. vs. CIT and CIT vs. Rukmani Mills Ltd. The Tribunal upheld the CIT(A)'s order on this issue as it was based on these precedents.

3. Classification of Expenditure on Combidan Mill as Capital or Revenue Expenditure:
The assessee claimed expenditure on installing and commissioning a new cement mill, Combidan Cement Mill, as revenue expenditure under Section 31 of the IT Act, which was disallowed by the Assessing Officer and upheld by the CIT(A). The Tribunal analyzed the facts in detail:

- The assessee is a cement manufacturer, and the new mill was part of a modernization program replacing four outdated mills without increasing production capacity.
- The Tribunal found that the replacement of the mills constituted "current repairs" under Section 31, as it was part of maintaining the existing plant.
- The Tribunal noted that "current repairs" could include significant replacement expenditures and that the new mill did not alter the cement plant's entirety or capacity.
- The Tribunal concluded that the expenditure on the Combidan Mill was allowable as "current repairs" under Section 31, despite being capital in nature, as it was part of maintaining the plant's functionality.

The Tribunal remitted the matter back to the Assessing Officer to determine the quantum of expenditure actually paid during the relevant assessment year and allow such expenditure accordingly.

4. Addition of Contingent Deposits Towards Possible Levy of Sales Tax on Freight:
The assessee collected contingent deposits towards possible sales tax on freight, which the Assessing Officer added to the income. The CIT(A) deleted this addition, but the Tribunal set aside this decision for further investigation. The Tribunal directed the Assessing Officer to reconsider whether these deposits constituted income, keeping in mind the Supreme Court's principles in CIT vs. Bazpur Co-operative Sugar Factory Ltd., which emphasized the liability to return deposits under certain conditions.

Conclusion:
The Tribunal upheld the CIT(A)'s orders on the issues of subsidy reduction and guarantee commission. It allowed the assessee's appeal regarding the Combidan Mill expenditure, treating it as "current repairs" under Section 31, and remitted the matter back to the Assessing Officer for determining the allowable expenditure. The Tribunal set aside the CIT(A)'s decision on contingent deposits for further investigation by the Assessing Officer. The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.