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TMI Blog1991 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... he dollar loan, raised from ICICI for purchasing machinery from abroad was a capital expenditure and not an allowable revenue expenditure ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have allowed depreciation on the assets representing the capital expenditure on scientific research fully allowed as deduction in computing the total income for the earlier years ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal should have held that the issue of additional capital having been made for the preservation of the existing business the expenditure incurred for such issue was of a revenue nature wholly and exclusively incurred for the purpose of the assessee's business ? 5. Whether, on the facts and in the circumstances of the case and on a true construction of clause (47) of section 2 and section 45 of the Income-tax Act, 1961, the Tribunal erred in holding that the amount received from the insurance company in respect of plant and machinery and furniture and fittings destroyed during the riots by the workers on a `transfer' and, therefore, taxable under the head 'Capital gains' ? 6. Whether, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt thereof. " The provisions prescribing the ceiling limits are independent of the provisions as to the excessiveness or unreasonableness which are to be judged as per the criteria formulated in the main limb of section 40(c). Where the aggregate of the expenditure or allowance as envisaged by section 40(c) exceeds Rs. 72,000 for a particular year in relation to a director or a person having substantial interest, etc., the excess is disallowable outright immaterial of whether the payment is excessive or unreasonable. We, therefore, answer the first question in the negative and against the assessee. The second question relates to the augmented liability of Rs. 8,721 arising on account of fluctuation in the exchange rate of dollars at the time of repayment of the dollar loan obtained from the ICICI for purchasing machinery from abroad. According to the assessee, the liability is incurred for repayment of loan for purchase of machinery. The loan not being an asset, the losses suffered in repayment of the loan are pleaded by the assessee to be allowable revenue expenditure. The Tribunal held that the disallowance of the amount as capital expenditure was correct because the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and in favour of the Revenue. The third question relates to allowability of the depreciation on the assets representing capital expenditure on scientific research which have already been allowed full deduction in computing the total income for the earlier years. The Commissioner of Income-tax (Appeals) as well as the Tribunal had taken a forthright approach by declining to grant depreciation. Section 35 has been amended with retrospective effect precluding the assessee from claiming depreciation on the assets for which the deduction has been allowed under section 35 of the Act. Therefore, the Tribunal was correct in holding that such assets are not entitled to depreciation over and above the full deduction allowed in respect of their cost in past years. The third question is, therefore, answered in the negative and against the assessee. The fourth question relates to disallowance of expenditure incurred for issue of additional share capital. The Assessing Officer held that the expenditure being directly connected with the increase of share capital falls under capital account and is disallowable as capital expenditure. The Tribunal supported the Assessing Officer's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult is the restructuring of the capital base by widening it through securing to the assessee-company a large substratum as capital, This, in our view, is the crucial factor. That apart, the enhancement in the share capital cannot be said to be wholly incidental to the preservation or continuation of the business, because there could be other means of reducing foreign holding in accordance with the statutory requirement under the Foreign Exchange Regulation Act as already indicated by us, viz., internal readjustment of shareholding. Therefore, with respect, we differ from the decision of the Bombay High Court and hold that the expenses for increasing the share capital is capital expenditure regardless of what necessitated the increase. The plea, carried to its logical extreme, would be permissive of every increase in share capital being allowable as revenue expenditure, if such course is dictated by any exigency of the continuance of the business. In Avery India Ltd. v. CIT [1993] 199 ITR 745 (Income-tax Reference No. 54 of 1989), where the judgment was delivered on July 18, 1991, this court took the same view. We, therefore, answer the fourth question in the negative and in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets destroyed by fire under section 41(2) of the Income-tax Act, 1961, and the balance amount as capital gains. The Tribunal found that, under the terms of the insurance policy, the insurer had the right to take possession of, or require to be delivered, any property of the insured in the building or the premises at the time of the loss or damage and the right to remove the property or otherwise deal with the same, and that, in that case, the leftover property was taken over by the insurance company. Accordingly, the Tribunal held that the balance amount was assessable as "Capital gains": On a reference, a Division Bench of this court was of the view that, on payment of the policy money, the insurer became entitled to what remained of the capital assets and took it over. This was, therefore, a case of transfer of that capital asset in a changed shape and form and the gains arising therefrom were assessable as "Capital gains". Our attention has also been drawn to a decision of a Division Bench of this court in the case of Darjeeling Consolidated Tea Co. Ltd. v. CIT [1990] 183 ITR 493. In that case, the assessee claimed that the ropeway machinery belonging to the company was blow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference, the Madras High Court held that, as the ship sank in the high seas without any act on the part of any person, the provisions of section 45 will not be attracted. Where moneys were paid by an insurance company consequent upon total destruction of the property and no transfer results from such destruction or extinguishment of all rights in the capital asset, the amount paid by the insurance company could not be described as a consideration as a result of the transfer of the capital asset. Therefore, the assessee was not liable to be assessed to capital gains tax in respect of the sum of Rs. 1,00,000 received from the insurance company. This decision did not, however, consider the decision of this court in the case of Marybong and Kyel Tea Estates Ltd. [1981] 129 ITR 661. Moreover, this decision is distinguishable on facts. In Marybong and Kyel's case [1981] 129 ITR 661 (Cal), the left-over property was taken over by the insurance company whereas in C. Leo Machodo's case [1988] 172 ITR 744 (Mad), the boat sank and no property was left over. Whether the loss or destruction was due to the act of parties, in our view, is not relevant in determining the question whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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