1992 (5) TMI 16 - HC - Income Tax

Summary

Issues involved:
The judgment addresses various issues including the allowance of interest on arrears of commission, classification of drainage system as a building for depreciation allowance, treatment of overhead water tanks as plant or building for depreciation, and inclusion of borrowed capital for relief under section 80J of the Income-tax Act.

Interest on Arrears of Commission:
The court considered whether interest payable on arrears of commission to commission agents for the purchase of sugarcane was allowable as a deduction. The Supreme Court's decision in Mahalakshmi Sugar Mills Co. v. CIT was cited to support the allowance of such interest payments as a deduction, clarifying that it was not a penalty but a liability, thus upholding the Income-tax Appellate Tribunal's decision.

Classification of Drainage System:
Regarding the classification of the drainage system, the court referred to the Supreme Court's decision in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd., which established that drains are integral parts of a building and eligible for depreciation under section 32 of the Act. Consequently, the court ruled in favor of the assessee on this issue.

Treatment of Overhead Water Tanks:
The court analyzed whether overhead water tanks should be treated as part of the building or as plant for depreciation purposes. While the Tribunal accepted the tanks as part of the plant due to their connection with the factory's operations, the court reframed the question to determine whether the tanks should be considered plant or building. Ultimately, the court held that the assessee was entitled to depreciation on overhead water tanks by regarding them as part of the building.

Inclusion of Borrowed Capital for Relief under Section 80J:
The judgment also addressed the inclusion of borrowed capital for relief under section 80J of the Income-tax Act. Citing the Supreme Court's decision in Lohia Machines Ltd. v. Union of India, the court ruled in favor of the Department on this issue. The assessee did not press the question related to initial depreciation, which was returned unanswered.

In conclusion, the court's answers were in favor of the assessee for questions related to interest on arrears of commission and the classification of the drainage system. The court ruled that depreciation on overhead water tanks should be allowed by regarding them as part of the building. However, the court sided with the Department on the issue of including borrowed capital for relief under section 80J.