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TMI Blog1998 (2) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... age 900 of ITR the Hon'ble Madras High Court has observed that there is no definition of a factory building in the Act or in the Rules. From the very nature of things and from the very object which they are intended to subserve. There is no doubt that a canteen, fire service station, pump house, overhead tanks and wells, overhead line and street line, new stores and co-operative stores, buildings are essential adjuncts to the factory premises. It is impossible to conceive of a factory building without these constructed portions. No special reasons need be mentioned to characterise these items as factory building. The administrative block is admittedly said to consists of the office of the chief engineer, industrial engineering department, drawing office, methods and progress, latrines, compound walls, token workers, gate, etc. Even the compound wall of the factory was treated to be a part of the factory building, the learned counsel submitted that the CIT ought to have allowed depreciation on the entire factory building @ 10 per cent. 2.2 The learned Senior Departmental Representative invited our attention towards para 3.1 of the order of CIT(A). He submitted that the assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance and additional depreciation in respect of certain items of plant [as defined under s. 43(3)] and machinery installed within the factory premises conducive for the purpose of manufacturing operations, namely: . . Investment Allowance Additional Depreciation (i) data processing equipment 7,551 3,020 (ii) air-conditioning equipment 39,000 11,700 (iii) ship and canteen equipment 7,729 2,318 3.1 The learned counsel for the assessee submitted that the issue raised in ground No. 2(a) is covered by an earlier decision of the Tribunal in assessee's own case for asst. yr. 1983-84 with the directions to ascertain whether the equipment is installed within the factory premises or in the office premises. The learned Departmental Representative supported the order of the CIT(A). 3.2. After considering the submissions made by the learned representatives of the parties, we are of the view that it will be just and proper to set aside the order of the CIT(A) as well as that of the AO in relation to ground No. 2(a) and the matter should be restored back to the AO for deciding the same on the similar lines as has been done in asst. yr. 1983-84. The AO is directed to decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the conclusion that data-processing equipment was installed in the factory and was used for processing of inventories, material control system, machinery utilisation statements, break-down of the plant and machinery, warranty claim, payrolls, stock register and other management information to organise manufacturing operations of the plant. After satisfying himself about the fulfilment of various conditions, the AO allowed investment allowance and additional depreciation in the fresh assessment so made for asst. yr. 1982-83. The facts relating to the year under consideration are identical in the year under consideration. We are, therefore, of the view that data processing equipments installed in the factory and utilised for the various manufacturing operations of the plant are eligible for grant of investment allowance and additional depreciation. The AO is accordingly directed to allow the same. 5. As regards ground No. 2(b)(ii) relating to assessee's claim for grant of investment allowance and depreciation on air-conditioning equipments, the learned counsel for the assessee submitted that this point is covered in favour of the assessee by a decision of the Tribunal in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g year, i.e., for the quarter October-December, 1982, amounting to Rs. 12,80,519 actually paid during the calendar year 1983 relevant to asst. yr. 1984-85 should be allowed in the year under consideration, when it has actually been paid. At the time of hearing, the learned counsel for the assessee submitted that this part of the ground has now become infructuous since the amount has been allowed in asst. yr. 1983-84 itself. This part of the ground is, therefore, rejected. 8. Ground No. 4 relates to confirmation of the disallowance of a sum of Rs. 8,000 paid to Khurana Engineers & Consultants included under the head "Legal and Professional Expenses". The CIT(A) confirmed the said disallowance on the ground that payment to Khurana Engineers & Consultants was made for obtaining administrative approval from HSEB for obtaining 66 K.V. sub-station for ETL. This expenditure was incurred for obtaining approval for installation of a capital asset. Hence, the expenditure was treated as a capital expenditure. 8.1 The learned counsel for the assessee invited our attention towards the details of such expenses submitted at p. 40 of the compilation. The learned Departmental Representative suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the Indian Society of Agricultural Engineers. It appears that a total sum of Rs. 15,000 was approved by the group of these companies. Rs. 8,000 was sent by Escorts Ltd. and the balance sum of Rs. 7,000 was paid and borne by the appellant company for hosting the lunch on the eve of the said conference. The learned counsel submitted that such an expenditure was incurred for the business purposes of the appellant company. The ISAE is the appex national body of agricultural engineers and the deliberations of the society carry considerable weight not only with the private sector but also with the development departments and policy-making bodies of the State Governments as well as the Government of India in planning policies and priority programmes relating to agro industries and agricultural production in the country. The outcome of the convention were obviously of considerable interest to the assessee as the assessee's industry is an agro-based industry. We are, therefore, of the considered opinion that the expenditure of Rs. 7,000 was wholly incurred for business purposes of the company and is, therefore, clearly allowable. We direct the AO to allow the same. 11. Ground No. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred wholly and exclusively for business purposes. In our view the said expenditure is clearly allowable. The AO is directed to allow the same. 12. Ground No. 7 relates to confirmation of disallowance of total sum of Rs. 25,100 debited under the head "Rates & Taxes". The details of the said amount is as under: . Rs. (a) Application fee under TDS for automatic head changing machine 5,100 (b) Amount paid to Haryana State Board for the prevention or control water pollution 20,000 . 25,000 12.1 The learned counsel submitted that Rs. 5,100 represents the amount of application fee paid for import licence application to Technical Development Fund Scheme. The other amount of Rs. 20,000 was paid to Haryana State Board for the prevention or control of water pollution. A copy of letter dt.25th May, 1983, sent by the said Board demanding the balance amount of Rs. 20,000 was also produced in the compilation at p. 50. The learned counsel submitted that such expenses incurred by the assessee for prevention of pollution is a necessary business expenditure. 12.2 The learned Senior Departmental Representative submitted that Rs. 20,000 paid by the assessee is merely a deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a deposit is incorrect. A perusal of letter dt.25th May, 1983, sent by HSB clearly shows that an aggregate sum of Rs. 50,000 was payable by the assessee to them towards consent/annual licence fee. This consists of Rs. 15,000 as consent fee for the year 1976-77 and Rs. 35,000 as an annual licence fee at the rate of Rs. 5,000 per year from 1977-78 to 1983-84. The assessee had deposited towards the aforesaid fees an aggregate sum of Rs. 30,000 for the earlier years. The additional demand of Rs. 20,000 was created by HSB vide aforesaid letter dt. 25th May, 1983, in relation to renewal of consent of discharge of effluent under s. 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 for the year 1983-84. It was clearly indicated in the said letter that failure to deposit the balance amount of Rs. 20,000 will render the appellant company liable for legal action under the said Act. It is universally known that the concerning pollution control authorities and the Courts are taking a very strict view in matters relating to prevention and control of water and air pollution, etc. The failure on the part of various industries have resulted in closure of larger number of industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no provision in the service contracts for providing such benefits. However, the AO is not justified in making an ad hoc disallowance of Rs. 10 lakhs. He, therefore, directed the AO to obtain he necessary information and details from the appellant company regarding use of company's car by the executives and the expenses incurred thereon and thereafter recompute, the amount disallowable on this account under s. 40A(5). He further held that in case full details are not available, the AO would be at liberty to estimate the disallowance on the basis of the facts and information on record. 14.2 A similar ad hoc disallowance of Rs. 12 lakhs was made by the AO in assessee's case for asst. yr. 1983-84. The Tribunal vide its order dt.29th Sept., 1995in ITA No. 839/Del/1989 observed that there is no infirmity in the orders of CIT(A) and it accordingly sustained the order of the CIT(A) in this regard. Respectfully following the order of the Tribunal for the preceding year in assessee's own case, the findings given by the CIT(A) in the year under consideration relating to this ground is confirmed. 15. Ground No. 10 raised by the assessee is reproduced hereunder: That the Hon'ble CIT(A) VIII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit for surcharge deposited with IDBI under Companies Deposits (Surcharge on Income-tax) Scheme, 1983, amounting to Rs. 1,10,000 was not pressed by the learned counsel for the assessee as the same was allowed by the AO under s. 154. Hence, ground No. 11 is rejected as not pressed. 17. Ground No. 12 raised by the assessee is reproduced hereunder: "That the Hon'ble CIT(A) VIII,New Delhi, has erred in law and on facts in upholding in not treating interest and financing charges in respect of plant and machinery purchased, installed and commissioned on deferred payment terms under IDBI. Bills rediscounting scheme as being capital expenditure and hence, eligible to depreciation, additional depreciation and investment allowance within the meaning of ss. 32, 32(1)(ii) and 32A of the IT Act, 1961 respectively." 17.1 The learned counsel for the assessee submitted that this point is covered in favour of the assessee by an order of the Tribunal in assessee's own case for asst. yr. 1983-84. 17.2 The learned Senior Departmental Representative submitted that the Tribunal in the preceding year, has not properly appreciated the provisions contained in Expln. 8 to s. 43(1) of IT Act, 1961. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and investment allowance on it. It is also not disputed before us that the aforesaid order of the Tribunal was also approved in the case of CIT vs. Vidia India Ltd. (1991) 97 CTR (Kar) 218 : (1992) 193 ITR 475 (Kar). Therefore, we accept the stand of the assessee in this regard by setting aside the order impugned and granting relief to the assessee, accordingly." 17.6 A similar view was taken by the Tribunal in the case of Indian Pistons Repco Ltd. and in the case of Escorts Transmissions Ltd. It has been held in the aforesaid decision that the enhanced price due to the facility given by the IDBI Scheme for deferred payment is quite distinct from either interest paid on capital borrowed or interest paid on unpaid price. The Tribunal also considered the provisions contained in Expln. 8 to s. 43(1) by the Finance Act, 1986, with retrospective effect from1st April, 1974. After considering the entire material, the amended provisions and the above referred decisions, the Tribunal, came to the conclusion that the amount paid by the assessee is to be treated as instalment only and, therefore, that would be part of capital and would be outside the ambit of Expln. 8 to s. 43(1) of the IT ..... 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