9911796707
TMI Blog2006 (5) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... at the end of each year. During the course of assessment proceedings, the assessee was asked to file the details regarding the liability of leave encashment and vide its letter dated 26.11.1999 the assessee submitted as under : "In response to point No. 13 of your notice, we would like to submit that in the Financial Year relevant to the A.Y 1997-98, the company had calculated the leave encashment liability at Rs. 1,54,67,861. This accrued liability was calculated on the basis of actual accumulated leave to the credit of the employees at the year end. In the subsequent years, the company has been adjusting the actual payments/settlements against this amount set apart." The Assessing Officer found that the assessee has maintained the accounts on mercantile system of accounting and the provision for leave encashment, according to the Assessing Officer, was only contingent liability. The CIT(A) endorsed the findings of the Assessing Officer in paragraph 11 of the impugned order. 3. The contention of the assessee before us is that the issue is directly covered in its favour by the decision of the Hon'ble Supreme Court in Bharat Earthmovers v. CIT (245 ITR 428) The learned stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SM annex bldg. 7. Salasar Cont. Co. 6.2.97 4,50,464 Interior work done at Operation Office enclosure 8. Salasar Cont. Co. 19.2.97 3,48,586 Interior work done at Cabin appearance at Santacruz 9. Salasar Cont. Co. 31.3.97 96,501 Interior work done at Express check in counter at Santacruz 10. Nirmala Furnishers 28.9.96 2282,057 Towards renovation of inflight office At old dispatch office S'cruz. 11. Nirmala Furnishers 12.12.96 2,43,568 Towards interior work done at S'cruz airport 12. Nirmala Furnishers 29.3.97 1,27,500 Towards erection of decorative backdrop pannel 13. Nirmala Furnishers 31.3.97 2,30,748 Towards interior work carried out IDC APT Office 14. Nirmala Furnishers 31.3.97 7,19,899 Towards interior work carried out at check in counter and back up office at IXU APT (Pur of chairs cost of Conveyance etc) 15. Nirmala Furnishers 1.1.97 5,92,468 Towards interior work done at check in counter at PNQ APT. 16. MAC Printers and Decorators 6.6.96 1,29,096 Toward renovation work done in Engg Dept. (office table, counter Table etc.) 17. Oriental Art 27.3.97 8,66,870 Toward providing and fixing of storage supply of trolly, wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se assets and the expenses are only to give a better working atmosphere to its employees and also to give an aesthetic look to its customers. Therefore, the expenditure in question is purely revenue in nature and is directed to be allowed. The depreciation granted by the Assessing Officer on these assets in the year under consideration as also in the subsequent years is directed to be withdrawn. 8. We shall now take up the departmental appeal for AY. 1997-98 in 1TA No.4087/M/2000. The major set of grievance in this appeal relates to the disallowance of aircraft redelivery charges, heavy maintenance expenses and major engine repairs. To appreciate these issues, it is necessary for us to understand the nature of the assessee's business. The assessee is engaged in the business of air taxi operations. Most of the aircraft operated by the assessee were taken on lease from various parties. The lease agreements provide that on termination of the lease period the assessee company at its cost is required to redeliver the aircraft and aircraft documents to the lessor at the delivery location or such other airport as is mutually acceptable to both the parties. The aircraft is to be redel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in the F.Y. 1996-97 relevant to assessment year 1997-98 is calculated on the basis of the expenditure relating to that year. Thus it is an ascertained liability on the basis of actual calculation but payable at the end of 7 years." Further there was also a change in the method of accounting for the major engine repairs. The assessee was spreading the major engine repairs over a period of one year and from the current year the company has started accounting for engine repairs on the basis of provisions made and in regard to the flight hours actually flown during the year. As a result of the change, the charge to the profit and loss account for the year under consideration was higher to the extent of Rs. 14,92,42,952 The assessee explained that keeping in view the International Air Transport Association (1ATA) guidelines relating to accounting for maintenance costs, recommendation from engine repair agency and historical engine repair experience, engine repairs are accounted on the basis of flight hours actually flown during the year. The assessee provided the details of calculation of major engine repairs vide his letter dated 04.10.1999. It also enclosed a letter received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flight cruise, cabin personnel, fuel, oil lubricants, maintenance, insurance, landing fees, airport charges, passenger services and all other expenses necessary for the operation of the aircraft. As per Article 7.6 it is the sole obligation of the lessee to maintain and repair the aircraft and all of its component parts throughout the lease term and until the aircraft is returned to the lessor. On the basis of the above terms in the lease agreements, the Assessing Officer proceeded to make the disallowance by giving the following reasons. "From the above, it is clear that the lease agreement stipulates all the maintenance cost of the aircraft are to be born by the lessee during the subsistence of lease. Moreover, the return of aircraft as per Article-12 depends on a contingency of expiration or termination of the Lease Term, in the event of default of" Lessee, the Lessor has the incur at the end of the lease period and at the time of return of aircraft was the upkeep and maintenance expenditure which is like any other maintenance expenditure incurred by the assessee during the subsistence of lease. The main item of expenditure is C-check. The assessee has been incurring this expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred. Coming to the major engine repair expenses, the assessee during the year incurred an amount of Rs. 14,55,92,692/- and provided an amount of Rs. 14,92,42,952/-. The total debit in books was about Rs. 29748,35,644/-The assessee's main argument is that the expenditure was provided based on the expert opinion at the rate of USD 170 per flight hour. Section 31 of the IT. Act. 1961 deals with repairs and insurance of machinery, plant and furniture which reads as under. "In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deduction shall be allowed" (i) the amount paid on account of current repairs thereto;" The section is clear about when the particular expenditure is allowed. The expenditure on current repairs is allowed when it was incurred. It cannot be allowed as an expenditure on the basis of future contingency or on the basis of some estimation of future liability. It is not on actual liability in prasenti and only a prospective liability of contingent nature." The Assessing Officer relied upon the decisions of the Supreme Court in the case of Indian Molasses Co P. Ltd. (37 ITR 66) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stipulate that the guiding factor in respect of maintenance will be in accordance with manufactures Maintenance Planning Documents (MPD), which normally spells out the time or number of cycles after which the airframe/engines and equipments are due for servicing and/or life restoration. (v) The DGCA and the lessor of the aircraft also lay down a mandatory periodic check called "C Check" which is annual maintenance procedure. (vi) The DGCA and the lessor of the aircraft also specify that all the aircrafts mandatorily undergo a through maintenance check which is known as "D Check" which is normally done after the aircraft is flown 2400 hours. (vii) The leased aircrafts have to be returned to the lessor on the Termination of the lease on the specified conditions which can be said in away that aircraft is fit in every respect on a specified airfield mutually agreed." The assessee further submitted that it has maintained the Quality Control Manual (QCM), which provides a guide for maintenance of its aircraft. This QCM is required to be duly approved by the Director General Civil Aviation (DCGA). Such approval of DGCA was placed before the CIT(A). The operative portion of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change in method of accounting' was bona fide and such changed method was regularly followed thereafter. The assessee relied upon the following case laws in support of its claim. "1. Sarupchand vs. CIT - 4 ITR 420 (Bom.) 2. CIT vs. West Const paper Mills Ltd - 193 ITR 349 (Bom ) 3. CIT vs. Destiny Inv. P. Ltd. - 218 ITR 232 (M.P.) 4. CIT vs. Dolaguri Ten Company Ltd - 76 Taxman 257 (Cal.) 5. Karnataka State Forest Industries Corporation Ltd. vs. CIT - 201 ITR 674 (Bang.) 6. CIT vs. Delta Plantations Ltd. vs. CIT - 114 CTR 271 (Cal) 7. Indian Molases Co. (P) Ltd. vs. CIT- 37 ITR 66 (SC) 8. CIT vs. Indian Metallurgical Corporation - 51 ITR 240 (Mad.) 9. CIT vs. Swadeshi and Flour Mills Ltd. - 53 ITR 134 (SC) 10. Standard Mills Company Ltd. vs. CIT - 229 ITR 366 (Bom) 11. CIT vs. Krishnaswami Murlidhar - 531 ITR 122 (SC) 12. Morvi Industries Ltd vs. CIT - 82 ITR 835 (SC) 13. Keshav Mills vs. CIT - 23 ITR 230 (SC)" Thereafter, the assessee explained the nature of the expenses in the following manner: "Heavy Maintenance Cost: As per the lease agreement, Boeing Companies MPD and DGCA guidelines, the appellant company has to follow the specified maintenance programme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwich Caledonian, an organisation of international repute holding expertise in respect of aircraft maintenance. After examining the flight schedule/time table of the appellant company, past experience of the appellant company and the weather conditions in India it had recommended that the appellant company should secure the expenses in respect of major engine repairs at the rate of US$ 170 per flight hour. Accordingly, based on the actual flight hours the appellant company had made provision of Rs. 29,48,35,644/- for the assessment year under review. Out of this, Rs. 14,55,92,692/- was paid within that year itself and the balance was paid in subsequent five to six months. The A.O. had disallowed the claim of the appellant company stating that the liability is of a contingent nature since the whole amount was not actually paid during the year under review. The A.O after discussion this fact at page 7 of the assessment order disallowed the sum of Rs. 14,92,42,952/- (Rs.29,48,35,644/- Rs. 14,55,92,692/-). Further, accepting and ignoring the fact that the appellant company had made a payment of Rs. 14,55,92,692/- during the assessment year under review the A.O. held that the balance li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the agreement and not challenged by the A.O. Further the company has liability on account of redelivery expenses has also been accepted by the A.O. and same has been mentioned in the assessment order," 10. The learned CIT(A) after going through the several contentions of the assessee and examining the nature of these expenses and also the strict control exercised in the industry by the Civil Aviation Ministry, the manufactures of aircraft and IATA and having regard to the uniform accounting policy adopted in the airline industry, found that the claim of the assessee deserves to be accepted and the disallowance made by the Assessing Officer was not justified. He did not agree that the claim of the expenses in question was contingent in nature but they were accrued liability in the light of the principle laid down by the Supreme Court in the case of Indian Molasses Co. Ltd. (supra) and in the case of Madras Investment Corp. Ltd. (supra) and held the claims of the assessee as allowable deductions. The revenue is aggrieved. 11. The learned standing counsel for the department, at the outset, pointed out that the Assessing Officer has considered the issues from all possible angles an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be to suit its convenience. It has to follow the accepted norms of accounting The assessee's departure from the existing method, according to the learned standing counsel, is not bona fide and should not be accepted, although the same is regularly followed in the subsequent years. 12. The learned counsel for the assessee, on the other hand, strongly relied upon the discussions in the order of the CIT(A). According to him, the learned CIT(A) has properly appreciated the ground realities of the assessee's business and also the accounting policies required to be followed by the assessee having regard to the guidelines issued by IATA. He pointed out that the Assessing Officer has taken too a narrow view of the matter without appreciating the ground realities of the assessee's business. He further pointed out that the learned CIT(A) has not only appreciated the facts of the case properly but has also went on to compare the provisions made by the assessee and claimed as deduction and the actual expenses incurred by the assessee against the provisions made, which clearly show that there has been a short provision on most of the items of expenditure incurred by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the learned CIT(A) has discussed all these important material to support the relief granted by him. According to the learned counsel, the order of the CIT(A) requires to be confirmed on the basis of the case laws discussed by him. 13. We have carefully considered the rival contentions and have gone through the orders of the authorities below and also the voluminous material placed by the assessee in the paper-books. The learned CIT(A) has dealt with all the issues in detail and has properly appreciated the assessee's nature of business. The assessee is in the business of airline operations, which is highly regulated by several authorities for the purpose of flying public. Considering the sensitiveness of the business it is naturally expected that certain high standards of safety measures are strictly followed by the persons operating the aircraft. Before an aircraft is allowed to fly mandatory certificate of airworthiness has to be obtained from the civil aviation authorities. Before each flight is taken off the aircraft has to be thoroughly checked and routine repairs are carried out. An airworthiness certificate is to be obtained from a qualified engineer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exorbitant but which are not otherwise having regard to the actual expenses incurred by the assessee. The learned CIT(A) has examined the actual expenses incurred by the assessee on some of the aircraft which only shows that even after the change in the method of accounting there has been a short provision in the books of account. In the light of these facts it cannot be said that the claims of the assessee are only contingent in nature and are not the accrued liabilities. In fact, in the nature of the assessee's business the assessee has to incur these expenses. The only uncertainly is the actual time of the expenditure But the expenditure itself has to be incurred because of the flying hours completed. Even the quantum of the expenditure provided for in the accounts are based on the opinion of the technical people. The independence of such authorities is not in serious dispute by the revenue authorities. We, therefore, do not agree with the Assessing Officer that the expenditure to the extent claimed is contingent in nature having regard to the facts of the case and the method of accounting that are required to be followed by the assessee in the line of business in which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of hire. As mentioned earlier, even the option given to the hirer to purchase the aircraft at the end of the hire period was not absolute and beset with so many conditions and in the event of any eventually stipulated in the agreement the hirer may stand to loose the right of "option" to purchase the aircraft." The Assessing Officer concluded that inasmuch as the title of the property vests with the hirer only after exercising option to purchase the asset by fulfilling all the conditions mentioned in the agreement, till such time the ownership of the asset in question remains with the owner and the assessee cannot be considered an owner and no depreciation can be granted on these assets. The learned CIT(A) however, was of the view that the assessee is entitled for depreciation on the assets purchased under the hire purchase agreement in the light of the Circular No.9 issued by the CBDT and also in the light of the decision of the Delhi High Court in the case of ACIT v. General Industries Corporation (155 ITR 430) and the decision of the Madras High Court in the case of Tamil Nadu Dairy Development Corporation v. CIT (239 ITR 142). The learned CIT(A) concluded that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions and the generality of the hire purchase agreement. Clause 30 of the hire purchase agreement, which is the basis for disallowing the assessee's claim in the hands of the Assessing Officer, has been properly dealt with by the CIT(A). We agree with the view of the CIT(A) that the conditions laid down in the said clause 30 are nothing but more than the routine formalities that are to be performed by the hirer. Such terms and conditions are usually part and parcel of every hire purchase agreement. To avoid these controversies the Board has issued circulars from time to time enabling the hirer to claim depreciation on assets acquired under what is known as hire purchase agreements. The Madras High Court in the case of Tamil Nadu Dairy Development Corporation Ltd. (supra) has also considered similar agreement and upheld the claim of depreciation on the assets acquired under similar hire purchase agreement. Therefore, the CIT(A) was right in law, in directing the allowance of depreciation on the two aircrafts acquired by the assessee and we decline to interfere. 17. The next dispute in the revenue's appeal for assessment year 1997-98 relates to disallowance of Rs. 1,32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. The learned counsel for the assessee, on the other hand, pointed out that these are not expenditure on the maintenance of guest-house. These are business expenses incurred for providing accommodation to assessee's employees in hotel where it could not provide residential accommodation to them in the beginning of its business. We find that identical issue came up before the Tribunal in the assessee's own case for A.Y. 194-95 in ITA No.2037/Mum/99 wherein the Tribunal has accepted the contentions of the assessee. Facts and circumstances being similar, for the reasons mentioned in our abovementioned order in the assessee's own case, we decline to interfere with the order of the CIT(A) on this issue. Accordingly, this ground is rejected. 19. The next dispute in the departmental appeal for assessment year 1997-98 relates to the disallowance of Rs. 4,06,808 in respect of presentation articles under Rule 6B of the I.T.Rules. We have heard both the sides and find that the issue is directly covered in favour of the assessee by the decision of the Bombay High Court in the case of Allana Sons Pvt. Ltd. (216 ITR 690). None of the articles meant for presentation did bear eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998-99 to 2001-02 in ITA. Nos. 3691/M/02, 3201/M/03, 6084/M/03 and 7390/M/04. The first common grounds in all these appeals viz., disallowance of aircraft redelivery charges, heavy maintenance expenses, major engine repairs and depreciation on aircrafts taken on hire purchase basis, are the same as dealt with by us above for the A.Y. 1997-98. On the basis of the our reasoning therein, the orders of the CIT(A) on this issue for the years under consideration are confirmed. 23. The only remaining dispute for departmental appeal for A.Y. 1998-99 relates to disallowance of lease rent u/s. 40(a)(i) for non deduction of tax at source amounting to Rs. 14,00,92,734. The assessee had paid lease rental to M/s. Mercurbank Aktiengasellschaft Austria in respect of two aircrafts registration Nos. MSN 25663 and MSN 25664 at Rs. 14,00,92,734 without effecting tax deducted at source. It was the case of the assessee that the payments were made after obtaining authorization u/s. 195(2) of the I.T.Act, 1961 from the appropriate authorities, which contained, inter alia, the following: "2. You are hereby authorized to make payment of the aforesaid sum to M/s. Mercurbank, Aktiengasellschaft Austria, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accrue or arise in India". (i) All income accruing or arising whether directly or indirectly through or form any business connection in India or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situate in India." It is stated that in the assessee's case there exist a business connection between a Mercurbak, Austria (Lessor) and assessee and the income arises from the transfer in the form of leasing of capital asset (aircraft) situate in India and therefore, by virtue of the provisions of Section 9(1)(i), the lease rental income is taxable in India. The taxability of such lease rental income in India is further strengthened by the provisions of sec.10(15A), which reads as under: "any payment made by an Indian company engaged in the business of operation of aircraft to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign state or a foreign state or a foreign enterprise under an agreement. (not being an agreement entered into between 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tria u/s. 195(1) of the Income-tax Act 1961 Act)]. The A.O. vide his order dated 17.10.1997 authorised the payment of the fixed monthly rental charge of US$ 340 per flown hour based on actual utilisation of Aircraft without deduction of tax at source. Accordingly, remittance of Rs. 7,32,92,084/- and Rs. 6,68,00,650/- was made to Mercurbank, Aktiengesellschaft, Austria without deduction of tax at source. I find that Assessing Officer has faulted the appellant for not deducting tax at source. According to me, this is not justified action on the part of the AO, when on authorized/competent officer has authorized the payment of fixed monthly rental charge and variable monthly rental charge without deduction of tax at source. 13.20 During the course of the assessment proceedings, the assessee company was required to explain as to why the lease rental ought not to be disallowed in view of the provisions contained in Sec 40[a][1] According to the AO the income was taxable in India due to the reason that the income arose form the transfer in the from of leasing of capital asset (aircraft) situated in India and therefore, the provisions of section 9(1)(i) were attracted. The AO thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified in holding that the lease rental payment is covered under any "other sums" which is chargeable to tax under section 5(2) and 9(1) of the Act and the case is hit be the provisions of section 40(a)(i)." 25. We have heard the learned standing counsel for the department, who strongly supported the findings of the Assessing Officer, and also the learned counsel for the assessee who strongly relied upon the discussions in the order of the CIT(A). Our attention was also invited to pages 92 to 97 of the paper-book containing the assessee's application for seeking authorization for payment to non-resident u/s. 195(2) and authorization dated 17.10.1997 issued by the DCIT (TDS) Rg. 11, Mumbai The assessee has also placed a copy of the lease agreement between AFT Trust - SUB 1 (lessor) and the assessee at pages 98 to 183 of the paper-book On the basis of these papers, the order of the CIT(A) was relied upon, 26. We have considered the rival submissions and have gone through the record We are completely in agreement with the reasoning given by the CIT(A) in deleting the disallowance made by the Assessing Officer, The CIT(A) was correct in appreciating the fact that in the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year whichever is earlier. A passenger is eligible to redeem his miles after collecting a minimum of 10,000 miles or completing 10 flights whichever is earlier. Any redemption of this accumulated mileage in the subsequent years is debited to this provision account. To track the miles earned by each member, a member is required to mention his JP membership numbers at the time of making a booking or at the time of checking in for a flight. Based on this information available in the system, the miles arc then updated in each member's account. The cost of the unutilized mileage lying to the credit of the passengers is then provided for in the books of accounts each year. Accordingly, an amount of Rs. 132,508,309/- has been provided in the books towards Frequent Flyer Expenses during the financial year 1999-2000" "The ascertaining of the liability is, therefore, on a scientific bans. Therefore, the assessee always knew the number of passengers who satisfied the minimum condition to be eligible for frequent flyer programme (later on known as Jet Privilege), it can thus be seen that the moment the assessee realized that the minimum condition for availing the Jet Privile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial; the liability so incurred has got to be allowed as revenue expenditure. This view is confirmed by the Hon'ble Supreme Court in the case of Haji Lal Mohd. Bin Works v. CIT (1997) 224 ITR 591, PP 594. It is submitted that applying the test laid down in the above cases, it can be seen that the assessee has satisfied all the conditions prescribed in those case and prescribed by the Institute of Chartered Accountant as well." The assessee's claim was not accepted by the Assessing Officer for the following reasons: "i. The frequent flyer programme expenses is a provision made in the books of account of the assessee. These expenses are contingent in nature. ii The frequent flyer programme is benevolent scheme in nature and there is no contractual liability on the part of the assessee company to incur the expenses. iii The expenses is contingent upon the utilization of facility by the passenger. Also the liability is not ascertained as the passenger may or may not utilize the facility provided by the assessee. iv. Any provision made in the books of account is not an allowable deduction under the I.T Act 1961 except for those which are specifically mentioned in the I.T Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim is incorrect and the order of the Assessing Officer required to be restored. The learned counsel for the assessee, on the other hand, on our instance, filed several details. He has filed at page 186 of the Paper Book the working of the provision for frequent flyer programme for assessment year 1999-2000 and similar working at pages 187 for assessment year 2000-01 and at page 188 for assessment year 2001-02: He has also provided the workings at page 189 of the Paper Book. During the course of hearing, we have called for the programme details of what is known as "Jet Privilege Members Guide". The entire programme relevant for the assessment years in question are again filed for our perusal The assessee has also filed copies of certain accounts depicting the J P Miles Earned and J P Miles Redeemed in a particular account to impress upon us that the claim of the assessee is more scientifically worked out and is based on the experience of the assessee's business and taking into consideration the certainties of the scheme. The accumulation of the miles is automatic under the scheme and the provision for the cost of the ticket to be issued in future is also based on scientifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the passenger is required to collect a minimum of 60,000 miles to his credit or complete 60 flights in one financial year whichever is earlier A passenger is eligible to redeem his miles after collecting a minimum of 10,000 miles or completing ten flights whichever is earlier. Any redemption of the accumulated mileage in the subsequent years is debited to the provision account. To track the miles earned by each member, a member is required to mention his 'JP Membership Number" at the time of making booking or at the time of checking in for a flight Based on this information available in the system, the miles are then updated in each members account. The total number of miles earned is ascertained in the above manner and a provision for the cost of tickets to be issued in future for the unutilized redeemable miles is made in the books of account as a liability Such liability is claimed as revenue expenditure In our view, the claim of the assessee is based on the liability it has undertaken under the frequent flier programme. It is not the case of the revenue that the liability provided by the assessee is not in accordance with the scheme operated by the assessee The liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition issued by The Accounting Standards Division" The Assessing Officer considered the above explanation and found it to be untenable. According to him, it is just a provision based on the estimated usual life of the aircraft These provisions are not the actual expenditure, but based on the estimated life span of the aircraft and the spare parts. Such provision at 5.6% per annum, according to him was not any actual write off of obsolete spares during the year According to the Assessing Officer, such a claim towards the liability was contingent in nature and depended on future probabilities. The obsolescence of stores is contingent upon many factors such as the type of the aircraft, the wear and tear and the technological induction in the aeronautic industry. Thus making provision at a fixed rate during the life span of the aircraft is incorrect and is likely to differ with the actual reduction in the value of the stores and spares. Thus such a provision based on an estimated liability, which is contingent upon host of factors cannot be subjected to deduction under the provisions of the Act The Assessing Officer followed the principle laid down by the apex court in the case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed for every subsequent assessment years To maintain brevity, we shall take the facts for the assessment year 1998-99 and dispose of the issue for other assessment years on the basis of this uniform facts. 33. We have heard both the sides and considered their rival submissions and have also gone through the record. In our view, the contentions of the assessee deserve to be accepted in the light of the International Accounting Standard applicable aeronautic industries The departmental authorities should have appreciated the nature of the assessee's business and the character of its claim based on the applicable accounting standard before rejecting the same, It is not an adhoc claim for deduction in respect of a contingent liability. The claim is in respect of the normal wear and tear which is acceptable in the aeronautic industries and such claim is bade on the provisions of Schedule XIV of the Companies Act, 1056 while dealing with the rate of depreciation. The 5 6% is the rate of depreciation prescribed under the Companies Act for providing depreciation for the purposes of section 2-5 and 350 of the same Act. In fact, the rate of depreciation prescribed under the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these expenses are in connection with acquisition of any capital asset We have already held that the expenses on repairs and renovations of furniture and fixtures as revenue in nature. The fees paid for getting certain professional advice in the matter are therefore similarly treated as revenue expenditure. This ground of the assessee is therefore allowed. 37. The next common dispute in the assessee's appeal for A.Y. 1999-2000 to 2001-02 relates to the action of the Assessing Officer in treating the interest income received from short term deposits under the head income from other sources in place of income from business. Before the Assessing Officer it was claimed that the interest earned on short term deposits made out of the surplus business funds should be treated as business income The Assessing Officer however, treated it as income from other sources The CIT(A) confirmed the findings of the Assessing Officer and the assessee is aggrieved. 38. The assessee has filed the details of the short-term deposit as well as the interest earned thereon in the paper-book The claim of the assessee before us is that all these short term deposits were out of the surplus business funds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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