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TMI Blog1988 (12) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Calcutta High Court in the case of Molins of India Ltd. 4. We have considered the rival submissions. Respectfuly following the decision of the Calcutta High Court, in the case of Molins of India Ltd., we are of the opinion that this liability was rightly rejected by the CIT (A). Consequently, this ground is hereby rejected. 5. The next grievance in assessee's appeal is that the CIT (A) erred in confirming disallowance made by the ITO on an amount of Rs. 11,21,480 being the provision made for the liability towards salaries, wages and bonus as on 30th Dec., 1979. The ITO disallowed the liability on the ground that the assessee has failed to prove that the liability provision arose in the year under consideration. The case of the assessee was that the aforesaid provision of Rs. 11,21,480 represents liability admitted by way of offers made by the company during the course of discussion and as such it stood committed to the workers and staff and the amount thereto would legitmately constitute the liability for the year. This amount has been actually paid immediately in the succeeding year. Therefore, it is a crystalised liability. The CIT (A) has mentioned in his order that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility should be allowed. The CIT (A) has rejected the liability only on account of the fact that the agreements were not produced before him. 6. As against this, the learned Departmental representative submitted that it is mere provision and no liability has accrued till then, specifically in the case of workers and city warehouse employees, where the agreements were entered into on 4th March, 1980 and 25th June, 1980. It is also submitted that details were not available. In this connection reliance was placed on the decision of the Supreme Court in the case of Indian Molasses Co. Pvt. Ltd. vs. CIT (1959) 37 ITR 66 (SC) of the Calcutta High Court in the case of CIT vs. Bharat General Textiles Industries Ltd. (1986) 157 ITR 158 (Cal) and the decisions of the Karnataka High Court in the case of CIT vs. Hindustan Aeronautics Ltd. (1988) 71 CTR (Kar) 156 : (1988) 40 Taxman 31 (Kar) and in the case of CIT vs. Srinivasa Sugar Factory (1988) 74 CTR (AP) 104 : (1988) 40 Taxman 130 (AP). 7. We have considered the rival submissions. So far as the liability with regard to clerical and technical staff to the tune of Rs. 3,70,699 is concerned, the assessee has produced copy of the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01/Bom/82 for asst. yr. 1978-79, has allowed the claim of the assessee. As against this, the learned departmental representative supported the action of the CIT (A). 11. We have considered the rival submissions. We find that in view of the decision of the Tribunal in assessee's own case cited above, the claim of 100 per cent deduction should be allowed under s. 36(1)(iv) of the IT Act. We, therefore, set aside the order of the CIT (A) on this ground and direct the ITO to allow 100 per cent initial contribution to the superannuation fund. 12. The next grievance in assessee's appeal is that the CIT (A) erred in confirming the disallowance made by the ITO to the extent of Rs. 3,42,396 as expenditure on advertisements, publicity and sales promotion under s. 37(3A) of the Act. The details of the expenditure disallowed are given below: (a) Sales literature and miscellaneous promotional aids Rs.7,18,610 (b) Giveaways, complimentaries and public relations. Rs.1,50,363 (c) Exhibition and displays Rs. 8,08,952 (d) Samples Rs. 2,14,629 (e) 50 % of souvenir advertisement Rs.25,559 (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The next grievance in assessee's appeal is that the CIT (A) erred in confirming the view taken by the ITO and consequently disallowing the assessee's claim for depreciation on capital expenditure on scientific research amounting to Rs. 2,01,333. At the time of hearing, learned assessee counsel did not press this ground and, therefore, this ground is hereby rejected. 16. The next grievance in assessee's appeal is that the CIT (A) erred in confirming the view taken by the ITO and thereby restricting the assessee's claim for depreciation on Forklift to 10 per cent instead of 30 per cent. According to the assessee, forklift falls within the definition of electrically operated vehicles and, therefore, depreciation at the rate of 30 per cent is allowable. The learned assessee counsel pointed out in Part-I of Appendix I item 10(A)XV on page 1.24, the Board Instruction No. 617 dt. 13th Sept., 1973, wherein it is mentioned that the forklift trucks also fall in the items of electrically operated vehicles. As against this, learned departmental representative supported the action of the CIT(A). 17. We have considered the rival submissions. Since it is clearly provided that fork-lift fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing or production of any article or thing specified in the list in the Eleventh Schedule, in any industrial undertaking. Therefore, it is not necessary to prove that the implements were directly used for aid to the plant and machinery fixed in the factory. It is also observed that items like fire-proof doors at Andheri factory and item No. 22 of the Annexure E has been treated as plant and machinery by ITO himself, where he has allowed 10 per cent depreciation. He has also allowed depreciation at 15 per cent on air-conditioner at factory, which is included at item 7 of the Annexure-E, treating it as plant and machinery. Therefore, the assessee shall be entitled to investment allowance on these implements. As regards cupboards at factory, they have been treated as Furniture Fixtures and not as plant and machinery in Item, 1 of Annexure and, therefore, they are not eligible for investment allowance. This ground is partly allowed. 21. The next grievance in assessee's appeal is that the CIT (A) erred in confirming that Rs. 16,513 out of legal and professional charges are disallowable as they relate to purchase of property, flat, garage, and construction of mezzanine floor. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance out of perquisite to the Managing Director. The case of the assessee is that there is no benefit to the managing director, as the Air-conditioner was fitted in a room in his residence which was used for doing official work and also for the purpose of meetings on company's business. The learned assessee counsel submitted that this amount is for service charges of air conditioner. The learned assessee counsel submitted that this amount is for service charges of air conditioner. In view of this, we are of the opinion that this amount should not be considered for disallowance under s. 40(C)(ii) out of perquisite to the Managing Director. (c) The next item is with regard to taking repairs to flats provided to the employees as perquisites and consequently making a disallowance of Rs. 5,000. The case of the assessee is that there is no additional perquisite in the repair done to the flat occupied by the employee, as the property of the company has to be maintained in proper condition. We find that this issue is covered against the assessee by the Special Bench decision in the case of Kodak India Ltd. vs. IAC (1986) 26 TTJ (Bom) 236 : (1986) 18 ITD 213 (Bom) (SB). In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a view of the amount to be disallowed. It was also observed that the ITO does not appear to have taken into account the fact that the law requires him to disallow appropriate amount of depreciation allowable on cars. In view of this direction of the CIT(A) we do not find any grievance to the assessee. The item under this ground is also hereby rejected. (f) The next item under this ground is whether provisions of s. 40A(5) or s. 40(c) that would be applicable in respect of salary and perquisites of the managing director. Here we find that this issue is decided by the Special Bench of the Tribunal in the case of Geoffrey Manners Co. 3 SOT 40, wherein it was held that provisions of s. 40(c) and not 40(A)(5) that would be applicable. Since the order of the CIT(A) is in consonance with this decision, we reject this sub-ground in assessee's appeal. 25. The next ground in assessee's appeal is that the CIT(A) erred in confirming the view taken by the ITO that while computing the capital employed in the new industrial undertaking the liability aggregating to Rs. 14,47,200 should be deducted from the gross capital employed. At the time of hearing, the learned assessee counsel did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be made in respect of depreciation of any assets in a guest-house: Provided that the aggregate of the expenditure referred to in cl. (i) and the amount of any depreciation referred to in cl.(ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest-house; Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house— (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation: For the purpose of this sub-section (i) residential accommodation in the nature of a guest house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this section. On being enquired by us, assessee counsel was not able to explain satisfactorily, whether such a situation arose and how it was accounted, while computing hiring of accommodation for name than 182 days. Therefore, though we entirely agree with the contention of the assessee that for maintaining residential accommodation in the nature of guest house for more than 182 days, it is not necessary to maintain the same in a single hotel and hiring accommodation in more than one hotel is also valid for computing more than 182 days, we do not know whether, while computing more than 183 nights, stayal of more than one person on one night in the same hotel is taken as one night or as a number of nights equal to the number of persons. We therefore, direct the ITO to allow this expenditure only after verifying that the assessee had actually booked/hired accommodation for more than 183 days/nights in Taj Group of Hotels without taking into account the number of persons staying simultaneously in the hotel on one day. In the result, we set aside the order of the CIT (A) on this point and direct the ITO to allow necessary relief on this account, after due verification, in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is account, after verification of the fact that the expenditure is incurred on para parts—imported spares and local spares—only. In the result, this ground is allowed. 30. The next ground in assessee's appeal is that the CIT (A) erred in confirming that the sum of Rs. 6,02,481 out of expenditure on repairs and maintenance of buildings aggregating to Rs. 42,91,443 was rightly disallowed by the ITO as capital expenditure. The case of the assessee was that the expenditure represents repairs and renovation of leased or tenanted premises and no advantage of enduring nature has been secured and as such it should be allowed as revenue expenditure incurred wholly and exclusively for the purpose of the assessee's business. 31. In this connection, learned assessee counsel invited our attention to the details given at pages 126 to 133 of the paper-book and submitted that the assessee company owns only Mulund factory and rest of the accommodation was only leased property. Therefore, leased property repairs do not amount to investment in capital asset, because there is no benefit of enduring nature to the assessee. As regards the Mulund Factory is concerned, the details of the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this issue against the assessee. 34. Now we come to the Departmental appeal. The first grievance in departmental appeal is that the CIT(A) erred in holding that Bonus Merchandise and sample of Rs. 13,00,664 is a trade discount and not sale promotion expenditure and on that ground deleting the disallowance made under s. 37(3A) of the IT Act, 1961. The learned departmental representative supported the action of the ITO. As against this, learned assessee counsel pointed out that this very issue came up for consideration before the Tribunal in ITA No. 3787/Bom/1983 for the asst. yr. 1979-80 and the Tribunal discussed this ground in para 5 of its order. 35. We have considered rival submissions. We find that this issue was decided by the Tribunal in assessee's own case for asst. yr. 1979-80 as cited above, and decided the issue in favour of the assessee. For the reasons given by the Tribunal in that order, we do not find any substance in this ground. This ground is hereby rejected. 36. The next ground in departmental appeal is that the CIT(A) erred in directing the ITO to allow 100 per cent depreciation on cost of the fans which is less than Rs.750 holding them as plant and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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