1990 (8) TMI 222 - AT - Income Tax

Summary

Issues:
1. Inclusion of fine and penalty paid for improper importation in computing the actual cost of a capital asset for depreciation calculation.

Detailed Analysis:
The judgment involves appeals by the Revenue against the Commissioner of Income-tax (Appeals) order, which accepted the claim of the assessee regarding the inclusion of fine and penalty paid for improper importation in the computation of the actual cost of a capital asset for depreciation purposes. The case pertains to a private limited company that imported Roller Mills from Poland, and a dispute arose regarding the assessable value of the goods, leading to the imposition of a fine and personal penalty by the Customs Department under the Customs Act, 1962.

The assessee contended that the total amount of fine and penalty should be capitalized and treated as part of the asset's cost for income-tax purposes. The CIT(A) referred to the decision in Kores India Ltd. and directed the Income Tax Officer (ITO) to grant depreciation and investment allowance based on the inclusion of the fine and penalty in the asset's cost. However, the Revenue challenged this decision, arguing that the payment of penalty for breach of the law cannot be considered a business expenditure and should not be allowed to be capitalized.

The Tribunal analyzed previous judgments, including the case of Kores India Ltd., and emphasized the need to decide the present case on first principles. It distinguished the facts of the case from previous decisions and highlighted the importance of determining whether the fine and penalty paid could be considered part of the actual cost of the asset. The Tribunal referred to the Challapalli Sugars Ltd. case and concluded that the expenditure necessary to acquire the asset, including the fine paid in lieu of confiscation, should be included in the actual cost.

Regarding the personal penalty imposed, the Tribunal rejected the Revenue's argument that it was personal expenditure unrelated to the imported machinery. It explained that even though termed a personal penalty, it was imposed on the company and had a nexus to the importation of goods, making it necessary to be considered as part of the asset's actual cost. The Tribunal ultimately upheld the inclusion of the total amount of fine and penalty in computing the actual cost of the imported machinery, entitling the assessee to depreciation and investment allowance on the total sum.

In conclusion, the appeals by the Revenue were dismissed, affirming the decision to include the fine and penalty paid for improper importation in the calculation of the actual cost of the imported machinery for depreciation and investment allowance purposes.