1986 (2) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of section 43A on increased liability due to currency fluctuations.
2. Depreciation and extra shift allowance on storage tanks and bore-wells.
3. Treatment of notional expenditure on depreciation, repairs, and property tax as perquisites u/s 40A(5).
4. Deductibility of expenses incurred on the issue of right shares.
5. Treatment of house rent and car allowance as perquisites u/s 40A(5).
6. Treatment of premium paid for personal accident insurance of employees as perquisites u/s 40A(5).
7. Deductibility of expenses on tea, coffee, etc., supplied to employees.

Summary:

Issue 1: Applicability of section 43A on increased liability due to currency fluctuations
The Tribunal held that the assessee's claim for increased liability due to currency fluctuations falls within the purview of section 43A of the Act. The court agreed, stating that the Tribunal's reasons were sound and supported by the Board's Circular No. F (408/67-TPL dated October 19, 1967). The question was answered in the affirmative, in favor of the assessee.

Issue 2: Depreciation and extra shift allowance on storage tanks and bore-wells
The Tribunal's decision to allow depreciation and extra shift allowance on storage tanks and bore-wells as plant was criticized for not applying the "functional test." The court held that the Tribunal had not examined the question thoroughly and directed it to re-examine the issue using the functional test. The question was answered in the negative.

Issue 3: Treatment of notional expenditure on depreciation, repairs, and property tax as perquisites u/s 40A(5)
The Tribunal's decision that expenditure on repairs, depreciation, and property tax on buildings used as residential quarters for employees should not be treated as perquisites was partially upheld. The court directed the Tribunal to re-examine the claim on repairs but upheld the Tribunal's decision on depreciation and property tax. The question was answered partially in the affirmative and partially in the negative.

Issue 4: Deductibility of expenses incurred on the issue of right shares
The Tribunal's decision to treat the expenses incurred on the issue of right shares as revenue expenditure was overturned. The court held that such expenses are capital expenditure, following the principle enunciated by the Supreme Court in India Cements' case [1966] 60 ITR 52. The question was answered in the negative, in favor of the Revenue.

Issue 5: Treatment of house rent and car allowance as perquisites u/s 40A(5)
The court upheld the Tribunal's decision that house rent and car allowance are not perquisites for the purpose of section 40A(5) as they were cash payments. The question was answered in the affirmative, in favor of the assessee.

Issue 6: Treatment of premium paid for personal accident insurance of employees as perquisites u/s 40A(5)
The court upheld the Tribunal's decision that the premium paid by the employer towards personal accident insurance of employees cannot be treated as perquisites. The question was answered in the affirmative, in favor of the assessee.

Issue 7: Deductibility of expenses on tea, coffee, etc., supplied to employees
The court upheld the Tribunal's decision that the expenses incurred on tea, coffee, etc., supplied to employees are deductible. The question was answered in the affirmative, in favor of the assessee.

Conclusion:
The court provided answers to the questions as follows:
- Question No. 1: Affirmative, against the Revenue.
- Question No. 2: Negative, Tribunal to re-examine.
- Question No. 3: Partially affirmative and partially negative.
- Question No. 4: Affirmative, against the Revenue.
- Question No. 5: Affirmative, against the Revenue.
- Question No. 6: Affirmative, against the Revenue.
- Question No. 7: Negative, in favor of the Revenue.

The parties were directed to bear their own costs.