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TMI Blog1998 (4) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... al was right in holding that the foreign tour expenses aggregating to Rs. 58,314 and Rs. 61,713 of the employees were not admissible as revenue expenditure?" At the instance of the Commissioner of Income-tax---for both the assessment years 1974-75 and 1975-76 :--- "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that only 1/6th of the amount of the telephone expenses incurred by the assessee should be disallowed and that the entire expenses of insurance premium should be allowed having regard to the provisions of section 40A(5) read with section 40(c) of the Income-tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that in respect of its machinery division the assessee was entitled to development rebate at 25 per cent. and not at 15 per cent?" At the instance of the assessee---for the assessment year 1974-75 only : "(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the legal expenses amounting to Rs. 9,776 paid for resisting the claim for higher compensation amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suring deferred payment of purchase consideration of machinery was an admissible deduction under section 37 of the Income-tax Act, had come up for consideration before the Andhra Pradesh High Court in Addl. CIT v. Akkamba Textiles Ltd. [1979] 117 ITR 294 and the court held that such expenditure constituted revenue expenditure and not capital expenditure and was, therefore, admissible as deduction from the income. This view came to be upheld by the Supreme Court in Addl. CIT v. Akkamamba Textiles Ltd. [1997] 227 ITR 464, which was reiterated in the case of CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465. In view of the said question having been concluded by the Supreme Court by holding that the guarantee commission paid in such cases was a revenue expenditure, question No. I referred at the instance of the assessee is answered in the negative, in favour of the assessee and against the Revenue. Question No. 2 referred to at the instance of the assessee and question No. 1 referred to at the instance of he Commissioner : These questions relate to the benefits given to the directors by the company in the nature of medical expenses, telephone facility and insurance premium. These expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company had, by taking out such policy of insuring the directors against personal accidents sought in fact to insure itself in respect of the liability that may arise towards the directors as a result of accident, then that situation would be different from a director himself taking out a personal accident insurance under which he would be obliged to pay the premiums and not the company. If such premiums are to be reimbursed to the director which is the obligation of the director himself to pay and not that of the company, qua the insurance company, then that would amount to a benefit to the director. The Tribunal has applied the decision of the Delhi High Court in CIT v. Lala Shri Dhar [1972] 84 ITR 192 for allowing the entire expenditure of insurance premium on the footing that the facts of this case are similar in that regard. In Lala Shri Dhar's case [1972] 84 ITR 192 (Delhi), it was noted that the act of taking out of the insurance policy was not a voluntary act of the assessee himself and the decision to take the policy was taken by the company. It was the duty of the employer-company to pay the premium in respect of the insurance policy and there was nothing on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 61,713 on the ground that these, foreign travel expenses were not for export purposes and they were for new projects not connected with the present business of the assessee. The Commissioner of Income-tax (Appeals) allowed these expenses. The Tribunal following the assessee's own case in the assessment year 1972-73, allowed the Revenue's appeal by holding that these expenses ought to be disallowed. In McGaw-Ravindra Laboratories (India) Ltd. v. CIT [1994] 210 ITR 1002 (Guj), where the court found that the manufacturing unit which was to be established in Malaysia and for which its employees had gone to Malaysia, was going to be an independent unit and that it was not to be a continuation of the business of the assessee, it was held that the Tribunal rightly treated the expenses on foreign travel for exploring the possibility of establishing a joint venture, as an expenditure of capital nature. Even in Shahibag Entrepreneurs P. Ltd. v. CIT [1994] 210 ITR 998, this court while dealing with a similar question where the foreign tours were undertaken by the directors and the employees of the assessee-company for establishing its unit in foreign countries in collaboration with ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s), therefore, allowed the development rebate at the higher rate of 25 per cent. on the additions to machinery in textile division for that year also. The development rebate on additions to machinery in the machinery division was, however, allowed at a lower rate of 15 per cent. The Tribunal, however, held that the higher rate of 25 per cent. for additions of machinery in the machinery division was justified since the matter was covered by the decisions of the Tribunal in the assessees' own case. As regards the textile division, it was held that the higher rate of 25 per cent. of development rebate was required to be allowed. As, inter alia, provided by section 33 of the Act, as in force at the relevant time, a deduction was to be allowed in respect of a new machinery installed in the previous year or first put to use in the immediate succeeding previous year, of a sum by way of development rebate where the machinery was installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, of 35 per cent. of the actual cost of the machinery to the assessee, where it was installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. He therefore allowed the deduction. The Tribunal held that the higher compensation would have formed part of the cost of the capital asset which would undoubtedly have been a capital expenditure. The Tribunal, therefore, took the view that the legal expenses were part of the capital cost and could not be allowed as a revenue expenditure. The provisions of the Land Acquisition Act, 1894, inter alia, provide for acquisition of land for a company. Compensation is to be awarded in respect of the land which is to be acquired under the Act, in the award made in accordance with these provisions. A reference can be sought by a person interested, to the court, inter alia, in respect of the amount of compensation and the court determines the amount taking into consideration the factors indicated in section 23 of the Act. Section 50 of the Land Acquisition Act provides that where the provisions of that Act are put in force for the purpose of acquiring land at the cost of any fund controlled or managed by a local authority or of any company, the charges of or incidental to such acquisition shall be defrayed from or by such fund or company. As provided by sub-section (2) of section 50, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the assessee for resisting the claim for higher compensation amounted to capital expenditure and hence were not allowable as revenue expenditure. Question No. 4 referred at the instance of the assessee is, therefore, answered in the affirmative against the assessee. Question No. 5 : This question relates to the power of the Income-tax Officer to revise a draft of the proposed order of assessment under section 144B of the said Act. Under the said provision, reference is required to be made to the Inspecting Assistant Commissioner in certain cases and the assessment can be completed by the Income-tax Officer after following the procedure prescribed therein in accordance with the directions given by the Inspecting Assistant Commissioner for the guidance of the Income-tax Officer to enable him to complete the assessment. In the present case, in respect of the disallowance of loss caused due to fluctuation in the exchange rates, a contention was raised by the assessee before the Commissioner of Income-tax (Appeals) that the Income-tax Officer had revised the draft order and given a fresh hearing under section 144B to the assessee for the same assessment year, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re forwarding the matter to the Inspecting Assistant Commissioner, revised his proposed order especially when he followed again the procedure of sending it to the assessee to enable him to object against the revised proposed order. There is no prejudice whatsoever caused to the assessee who is enabled to raise his objections against the proposed order as revised, nor is any vested right of the assessee adversely affected thereby. Until the assessment is completed by the Income-tax Officer under section 143(3) of the Act, he remains free to exercise his powers to complete the assessment. The process of preparation of a proposed order of assessment does not create any right in favour of the assessee to prevent the Income-tax Officer from revising such proposed order so long the assessee is given an opportunity to raise objections against it and they are duly forwarded for consideration of the Inspecting Assistant Commissioner under sub-section (4) of section 144B of the Act. In our view, therefore, the Tribunal rightly held that there was nothing wrong in the Income-tax Officer revising the draft order and again giving an opportunity to the assessee to give his objections before forw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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