1985 (3) TMI 24 - HC - Income Tax

Summary

Issues:
1. Deductibility of expenditure on repairs and renovation of the furnace.
2. Allowability of commission paid by the assessee-company to its directors under section 40(c) of the Income-tax Act, 1961.

Analysis:
1. The first issue pertains to the deductibility of the expenditure of Rs. 4,94,303 incurred on the repairs and renovation of the furnace. The Income-tax Officer initially rejected this claim, asserting it to be capital in nature. However, the Appellate Assistant Commissioner allowed the deduction. The Tribunal also ruled in favor of the assessee, citing a previous decision by the same Bench that similar expenditures were revenue in nature. Consequently, the High Court upheld the Tribunal's decision, stating that the expenditure was revenue in nature, thus allowing the deduction.

2. The second issue involves the allowability of the commission paid by the assessee-company to its directors. Both the Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, contending that the commission was a benefit and not a salary. The Tribunal did not delve into the factual aspects but focused on the applicability of section 40(a)(v) of the Act. However, the Tribunal failed to consider the reasonableness of the allowance under section 40(c) of the Act. The High Court opined that the Tribunal erred in not adjudicating the claim properly. It held that the Tribunal should have either assessed the reasonableness of the allowance under section 40(c) or remanded the matter to the Income-tax Officer for further investigation. Consequently, the High Court ruled in favor of the Revenue on this issue, directing a remand to the Tribunal for a proper determination.

In conclusion, the High Court answered the first question in favor of the assessee and against the Revenue, allowing the deduction for the expenditure on furnace repairs. However, the second question was answered in favor of the Revenue and against the assessee, directing a remand to the Tribunal for a proper assessment of the commission paid to the directors under section 40(c) of the Income-tax Act.