2019 (7) TMI 542 - HC - Income Tax

Depreciation claim on assessee trust - HELD THAT - Tribunal holds that there is no clarity as to how the computation of depreciation has been made and it opined that the quantum of depreciation allowable to the assessee for the impugned assessment years requires a re-visit by the Assessing Officer. Accordingly the finding was set aside and the matter has been remanded back to the Assessing Officer for consideration afresh in accordance with law. First and second substantial questions of law would not arise for consideration since the matter has been remanded to the Tribunal for fresh consideration. Therefore the first and second substantial questions of law are not answered and are left open. Expenditure paid directly to its retired employees - Expenditure incurred allowable under Section 37(1) even after allowing expenditure under Section 36(1)(iv) and (v) - Government of India has approved and notified an Employees Retirement Regulations termed as the Tuticorin Port Trust Employees Regulations 1979 - HELD THAT - Nature of deduction claimed by the assessee in respect of the payments made in terms of the statutory regulation would fall within the general deductions under Section 37 and cannot be brought u/s 36(1)(iv) and (v) of the Act. Therefore the reasons assigned by the CIT(A) and the Tribunal are perfectly in order. Furthermore the payments effected in terms of the Retirement Regulations 1979 have been strictly made to the retired employees account after deduction of tax at source wherever applicable. In respect of the claim for deduction on similar grounds made by the assessee for the earlier assessment years the same has been granted and these contentions advanced by the assessee before the CIT(A) and the Tribunal were not disputed neither there is any material placed before us to show that the assessee was factually wrong in raising such a contention. Therefore we hold that the assessee having been granted similar benefit for the earlier years the same cannot be denied for the subsequent years especially when the nature of payment is in the same fashion in terms of a statutory regulation. Revenue has not made out any ground to interfere with the order passed by the Tribunal.

Summary

Issues:
1. Interpretation of Section 43(6) applicability for a specific assessment year.
2. Computation of depreciation under Section 32(1) for trust assessed as doing business.
3. Allowability of expenditure under Section 37(1) after deductions under Section 36(1)(iv) and (v).

Analysis:

Issue 1:
The Revenue challenged the ITAT's interpretation of Explanation 6 to Section 43(6) for a particular assessment year. The Tribunal remanded the matter to the Assessing Officer for a fresh review as the computation of depreciation lacked clarity. Consequently, the High Court refrained from addressing this issue as it was pending reconsideration.

Issue 2:
Regarding the computation of depreciation under Section 32(1) for a trust engaged in business, the Revenue contended that the ITAT's decision was erroneous. The High Court noted that the matter was remanded for further assessment, thus not providing a conclusive ruling on this issue at this stage.

Issue 3:
The key dispute revolved around the allowability of expenditure under Section 37(1) after deductions under Section 36(1)(iv) and (v). The CIT(A) upheld the assessee's claim, emphasizing that the pension payments made to retired employees were legitimate business expenses. The High Court concurred with the CIT(A) and the Tribunal, asserting that the payments were in accordance with statutory regulations, thus falling under Section 37 deductions. The Revenue's argument to deny the deduction was dismissed, and the Tribunal's decision was upheld due to the adherence to statutory obligations and past precedents.

In conclusion, the High Court dismissed the Revenue's appeals, left the first and second substantial questions open for reassessment by the AO, and ruled against the Revenue on the third substantial question regarding the allowability of expenditure under Section 37(1) after deductions under Section 36(1)(iv) and (v).