1996 (3) TMI 46 - HC - Income Tax

Attributable To Development Allowance Expenditure Incurred Higher Rate Legal Expenses Rate Applicable Rate Of Depreciation Weighted Deduction

Summary

Issues Involved:
1. Depreciation rate applicable to lift.
2. Eligibility for relief under section 35B of the Income-tax Act, 1961, for specific expenditures.

Detailed Analysis:

Issue 1: Depreciation Rate Applicable to Lift
The primary issue was whether the depreciation on the lift in the assessee's office building should be allowed at 10% or 15%. The Income-tax Officer had allowed depreciation at 10%, categorizing the lift under "General electric machinery". The assessee argued that the lift should be classified as "rope-way structures-carriers" entitled to a higher rate of 15% depreciation as per entry III(ii)B(15) of the depreciation Schedule. The Tribunal upheld the Income-tax Officer's decision, stating that a lift is distinct from a ropeway structure and does not fall under the cited entry for higher depreciation.

The court, however, disagreed with the Tribunal's view. It referenced the Gujarat High Court decision in CIT v. Jyoti Ltd. [1987] 163 ITR 274, which considered a lift as a machinery for transporting men and materials. The court concluded that since a lift operates with the help of twisted steel wire rope and moves up and down, it should be considered a ropeway structures-carrier. Therefore, the assessee is entitled to a 15% depreciation rate. The court answered the first question in the negative and in favor of the assessee.

Issue 2: Eligibility for Relief under Section 35B
The second issue concerned the eligibility for weighted deduction under section 35B of the Income-tax Act, 1961, for expenditures on:
a) Attestation and legalisation of export invoices and legal expenses incurred in connection with export.
b) Salaries, allowances, and contributions to the provident fund for staff involved in export-related activities.

The Tribunal had denied the weighted deduction for these expenditures. The court analyzed various sub-clauses of section 35B(1)(b) and relevant case laws.

Sub-issue 2(a): Attestation and Legalisation of Export Invoices and Legal Expenses
The court referenced its previous decisions in K. Vensimal and Sons v. CIT [1986] 157 ITR 807 and V. D. Swami and Co. Pvt. Ltd. v. CIT [1984] 146 ITR 425, concluding that these expenditures are not eligible for weighted deduction. Therefore, the court answered this part of the question in the affirmative and against the assessee.

Sub-issue 2(b): Salaries, Allowances, and Contributions to Provident Fund
The court noted that the expenditure on salaries, allowances, and provident fund contributions for staff involved in export activities could be eligible for weighted deduction under section 35B(1)(b)(v). The court referenced multiple decisions, including CIT v. Aspinwall and Co. Ltd. [1993] 204 ITR 225 and CIT v. Continental Device India Ltd. [1992] 198 ITR 680, which supported the claim for such deductions. The court concluded that the assessee is entitled to weighted deduction on 50% of the claimed expenditure of Rs. 28,172, as the exact quantum of foreign trade was not provided. The court answered this part of the question in the negative and in favor of the assessee.

Conclusion:
The court concluded that the assessee is entitled to a 15% depreciation rate for the lift and a 50% weighted deduction for the salaries, allowances, and provident fund contributions related to export activities. However, the expenditures on attestation and legalisation of export invoices and legal expenses are not eligible for weighted deduction. There was no order as to costs.