TMI Blog1989 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief under section 80-I of the Income-tax Act, 1961, on the income earned by the assessee from transportation of crude belonging to Oil and Natural Gas Commission ?" The facts are that the original assessment of the company for the assessment year 1971-72 was made on March 21, 1974. In the course of the original assessment proceedings, the company had offered for addition in terms of section 40(a)(v) of the Income-tax Act, 1961, a sum of Rs. 12,60,723 and the said sum was accordingly added by the Incometax Officer while computing the assessee's income for the aforesaid assessment year. The computation of the aforesaid sum of Rs. 12,60,723 was given by the assessee in annexure II of the revised return filed by it in the following manner : (Rs.) (Rs.) "Fields and pipelines : Total expenditure in bungalow repairs, maintenance including water, electricity and petrol 13,60,736 Less : 1/12th for non-users during leave period of one month 79,549 12,81,187 ------------------- Depreciation 10,59,573 Less : 1/12th for non-users during leave period of one m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-I of the Income-tax Act, 1961, and complete the assessment accordingly." In accordance with the aforementioned directions of the Commissioner, the Income-tax Officer made another assessment on the assessee dated February 28, 1978, in terms of sub-section (3) of section 143 read with section 144B of the said Act. The company's plea that all the employees to whom section 40(a)(v) was applicable went on leave at least for a period of one month and the bungalows were not occupied during the leave period either by the employees or their dependents and that, therefore, 1/11th of the disallowance under section 40(a)(v) deserved to be reduced was not accepted by the Income-tax Officer. He pointed out in his order that "the company does not say that the employees leave and vacate the bungalows with all their belongings." It is stated by the company that "during the concerned employee's leave period, the company was free to use the respective bungalows for whatever purpose it liked and that if the company so desired, the bungalows could be allotted to other members of the staff after storing the employee's personal effects left by him in a part of the bungalow. But the company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the employees would continue to remain at the disposal of the company during the period of absence on leave of the employees. In view of the said circular, it was urged that the period of one month's leave should have been excluded by the Income-tax Officer while computing the disallowance in terms of section 40(a)(v) of the Income-tax Act, 1961. It was also urged that expenses incurred on the repairs and maintenance of bungalows were completely excludible for working out the disallowable amount under section 40(a)(v) as held by the Kerala High Court in the case of Travancore Tea Estates Co. Ltd. [1980] 122 ITR 557 and, therefore, there was no occasion to include the expenditure on repairing and maintenance of the bungalows, while computing the disallowance in terms of section 40(a)(v) of the Income-tax Act, 1961. On behalf of the Department reliance was placed on the reasoning given by the Income-tax Officer and the Commissioner of Income-tax (Appeals) in their respective orders and it was specially stressed that the assessee had not been able to bring any material on record to support its claim regarding non-user of the bungalows during the leave period. The Tribunal, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a perquisite. Section 40(a)(v) was inserted by the Finance Act of 1968, with effect from April 1, 1969. The object clause introducing section 40(a)(v) lays down as follows : "In the case of companies, the deductible amount of expenditure incurred by them in providing perquisites, benefits or amenities (subject to certain exceptions) to their higher paid employees is at present limited to 20 per cent. of the basic salary of each employee. It is proposed to extend this provision to non-corporate employers also and to bring within the purview of the limit any expenditure or allowance admissible to the employer in respect of any assets provided by him to the employee free of charge or on a concessional basis. Thus, where an employer has provided residential accommodation or household equipment such as frigidaires, air conditioners, etc., owned by him, to his employees free of charge, any expenditure incurred by the employer on the maintenance of these assets or any depreciation allowance admissible to him in respect thereof will also be brought within the purview of the limit over the deductible amount of expenditure in providing perquisites, benefits or amenities to employees." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from April 1, 1972. The latter part of section 40(a)(v) cannot apply to the repair and maintenance of such bungalow when the rent-free accommodation or the accommodation at a concessional rate is treated as a perquisite by the earlier part. Moreover, when a company is maintaining the bungalow in good livable condition, the company incurs the expenditure in question for repairs of its own property. Unless there is evidence that the repair increased the value of the bungalow and the flats, such expenditure cannot be coming within the ambit of the latter part of section 40(a)(v) of the Act. It cannot be the intention of the Legislature to bring within the sweep of the latter part of section 40(a)(v) expenditure or allowance in respect of an asset belonging to the assessee and used by such employees when the rent-free accommodation or the accommodation at a concessional rate is itself treated as a perquisite. This question came up for consideration before a Division Bench of this court in CIT v. Davidson of India Pvt. Ltd. [1984] 148 ITR 544. In that case, the Division Bench held that the assessee had incurred the expenditure on repairs in order to discharge the obligation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the construction of section 40(a)(v). For the foregoing reasons, we answer the first question in this reference in the affirmative and in favour of the assessee. We now turn to the second question. As indicated earlier, the assessee-company is engaged in the business of production, transportation and sale of crude oil. The oil fields of the assessee-company are in Naharkatia and Moran areas in Assam. A pipeline has been constructed by the assessee-company running from Naharkatia to Gauhati and therefrom to Barauni in Bihar. The pipeline has been used for transporting the crude oil produced by the assessee-company and it is sold to the Indian Oil Corporation at its refineries at Gauhati and Barauni. These pipelines have been in operation from 1962. From 1968 onwards, the assessee-company is transporting through the same pipeline along with its own crude oil, the crude oil belonging to ONGC with its field of operation in upper Assam. The crude oils are received at Moran pump station and are measured by the representatives of the assessee-company and ONGC. The crude oil of the assessee-company and ONGC flows together as a mixed crude up to the refineries. At the refineries agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of section 80-I of the Act. The crude of ONGC is transported by the assessee through the same pipeline which it had constructed for supplying its own crude. The Tribunal found that, but for the business of production and transportation of its own crude, the assessee would not have undertaken to transport the crude belonging to ONGC. In view of the above finding, it will be clear that the transportation of the crude of ONGC was undertaken by the assessee as part of its business of transportation of its own crude through its own pipeline. The transportation of its own crude and of the crude of ONGC is integrally connected with the business of the assessee. The income, therefore, of the assessee from transportation of crude of ONGC through its own pipeline should be attributable to the profits of the priority industry in view of the test laid down by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84. Our attention has also been drawn to several other decisions. In CIT v. West Coast Paper Mills Ltd. [1988] 169 ITR 288 (Bom), the assessee was engaged in the production of pulp and paper from bamboo which was a priority industry for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers of machinery manufactured by the assessee on deferred payment also had a direct nexus to the assessee's priority industry and was attributable to it. The facility of after sales repairs and of deferred payment were inducements offered to the intending purchasers and were intimately linked to the assessee's priority industry. Therefore, the assessee was entitled to deduction under section 80-I in respect of such income. Our attention has also been drawn to a decision of a Division Bench of this court in CIT v. Davidson of India (Pvt.) Ltd. [1986] 161 ITR 407. There, the Division Bench of this court held that the profits arising from sale of import entitlements obtained from export of manufactured products of the assessee which carried on the business of manufacture of tea garden machinery, a priority industry, are attributable to the business of manufacture and export of products in a priority industry and hence allowed the relief under section 80-I in respect of profits arising from the sale of import entitlements. In our view, having regard to the facts of this case and the principles laid down in the decisions referred to above, the second question must be answered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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