TMI Blog1986 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... . First, on the foreign loans secured for the purchase of machinery, the assessee made certain payments, however, incurring extra liability in Indian currency due to fluctuations in exchange rates. Second, the assessee incurred expenses on the repairs of houses owned but allotted to its executives for their residence. Third, the assessee had dug bore-wells and had constructed water storage tanks at the factory premises. Fourth, the assessee had incurred a sum of Rs. 1,00,074 as expenses on the issue of right shares to its shareholders. In its return filed for the aforesaid assessment year, before the Income-tax Officer, Company Circle-II, Bangalore ("the ITO "), the assessee claimed the extra liability incurred due to fluctuations in exchange rates as a permissible expenditure, the amounts spent for repairs on the houses owned and allotted to the executives and depreciation allowance on the storage tanks and bore-wells at higher rates as plant and machinery and share issue expenses as revenue expenditure with which claims only we are concerned in these cases. On December 26, 1984, the Income-tax Officer completed the assessment for the aforesaid year (annexure A) accepting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of machinery abroad ? Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department, appearing for the Revenue, has urged for answering question No. 1 in favour of the Revenue on the very reasons that found favour with the Commissioner. Sri G. Sarangan, learned counsel for the assessee, has urged for answering question No. 1 in favour of the assessee on the very reasons that found favour on this question by the Tribunal. That the assessee was compelled to make extra payment due to fluctuations in exchange rates over which it had no control is not in dispute at all. While the Income-tax Officer accepted this claim without any discussion, the Commissioner disallowed the same for these reasons : "4. With regard to the proposal to withdraw the depreciation allowed by the Income-tax Officer on the extra liability incurred by the assessee as a result of periodical variation in the market rate of exchange, the assessee's contention is that the provisions of section 43A of the Act would apply to its case. I do not agree. The provisions of section 43A are applicable only when there is a change in the rate of exchange at any time after the acquisition of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Allahabad was a doubtful test. While the Income-tax Officer accepted the claim of the assessee without any discussion, the Commissioner held against the assessee on this claim for these reasons: " Normal depreciation and extra shift allowance are admissible to plant and machinery employed in carrying on a business or trade or mechanical or industrial business. The question is whether storage tanks, bore-wells etc., can be considered as plant for the purpose of allowing normal depreciation and extra shift allowance ? The Bombay High Court in the case of Jayasingrao Piraji Rao Ghatge v. CIT [1962] 46 ITR 1160 has held that a water storage tank constructed by a person in connection with his business of supplying water to farmers is not 'plant' within the meaning of section 10(2)(vi) of the 1922 Act and depreciation allowance cannot, therefore, be granted in respect of such a tank. The same principle applies to a bore-well also. When a storage tank is not 'plant' even for a person whose business is to supply water, it cannot be so for the assessee who is a manufacturer of automobiles and other accessories. hold that the assessee is not entitled to extra shift allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term " plant " or not. Whether the items " bore-wells and storages tanks " are plant or not depends on their relation to the nature of the business carried on by an assessee. There cannot be any hard and fast rule in such matters and each case has to be decided on the facts and circumstances of that case only but with due regard to the above principle. When this test is properly applied to each case, it may turn out that in the case of one assessee, they may be " plant " but in the case of another they may not be plant. We are, therefore, of the view that the " functional test " evolved by the Allahabad High Court in Kanodia Warehousing Corporation's case[1980] 121 ITR 996, on a review of all the rulings bearing on the question, is relevant principle. We are in respectful agreement with the views propounded by their Lordships of the Allahabad High Court in that case. What emerges from our above discussion is that the Tribunal had not correctly applied the legal principle in determining the question and the question itself has not been examined and decided with due regard to the relevant principles. We have, therefore, no alternative but to answer this question in the negative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amenity or benefit to the employee. Where the expenditure does not add to the benefit or amenity, available to the employee even if the employer incurs the expenditure, whatever be the reason therefor, it cannot be added as a perquisite to the employee or disallowed in the employer's assessment for a similar reason. The building in the present case belongs to the assessee. The repairs to the building helps to retain the building as a good asset with which the assessee as an employer is concerned and protect it from deterioration or destruction. Depreciation allowance claimed enables the assessee either to set aside the amount to replace the building or to compensate him for the wear and tear of the building. Neither of these items renders any service to the employee, who, for the temporary period of his employment, resides in the building. Even if not doing the repairs would result in an accident or danger to the employee resident therein, it will be preposterous to hold that doing repairs is a positive service to the employee. The more correct thing would be to say that asking an employee to stay in a building in a state of repair would be a disservice to him and danger to him. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple enunciated by the High Court of Bombay in Tata's case, AIR 1921 Bom 391. For the relevant period that the assessee incurred a sum of Rs. 1,00,074 towards issue of right shares is not in dispute. Before the Income-tax Officer, the assessee claimed the said sum as a revenue expenditure. The ITO rejected the same and held the same as capital expenditure with which the Appellate Assistant Commissioner concurred. But, on appeal, the Tribunal noticing the rival contentions urged before it and referring to the ruling of the Supreme Court in India Cements' case [1966] 60 ITR 52 (SC) had held that the same was revenue expenditure. We are clearly of the view that the Tribunal had not correctly applied the ratio in India Cements' case [1966] 60 ITR 52 (SC) that really concludes the controversy. We, therefore, first propose to examine whether the question is concluded by the ruling of the Supreme Court in India Cements' case [1966] 60 ITR 52 (SC) or not. In Tata's case, AIR 1921 Bom 391, the company had paid or incurred a sum of Rs. 28,00,000 to the underwriters for issue of 7,00,000 preference shares of Rs. 100 each and claimed that sum as revenue expenditure under the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare issue expenses are treated as capital expenditure, there cannot be any good ground to hold that expenses for issue of additional shares by way of right shares can be treated in any other way. Any issue of additional shares and the expenditure incurred thereon can only have the character of share expenses and capital expenditure only and cannot be anything different. Every one of the reasons on which share issue expenses are treated as capital expenditure justify us to hold that the same mutatis mutandis governs the expenses incurred for issue of additional shares also. We cannot, on principle or authority, hold otherwise. We are of the view that that is how the Bombay High Court has enunciated the principle and we are in respectful agreement with those views. We are of the view that the ruling of the High Court of Madras in CIT v. Kisenchand Chellaram (India) (P.) Limited [1981] 130 ITR 385 relied on by Sri Sarangan, does not lay down a different proposition on this question. But, assuming that it does, then, with great respect to their Lordships, for the very reasons set out by us, we regret our inability to subscribe to the views expressed in that case. On the foregoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that this question must be answered in the affirmative. In the light of our above discussion, we answer the questions referred to us as hereunder : Questions Answers Question No. 1 : In the affirmative, against the Revenue and in favour of the assessee. Question No. 2: In the negative. We hold that the Tribunal should apply the functional test evolved by the Allahabad High Court in Kanodia Warehousing Corporation's case [1980] 121 ITR 996 and rede termine the fact situation afresh. Question No. 3: On the claim of expenditure on repairs, the Tribu nal had not correctly applied the legal principle and must, therefore, redetermine the claim applying the principles set out at para. 16 of this order. But, the determination made by the Tribunal on depreciation of buildings and pay ment of property taxes is correct. Hence, our answer on these claims is in the affirmative, against the Revenue and in favour of the assessee. Question No. 4: In the affirmative, against the Revenue and in favour of the assessee. Question No. 5: In the affirmative, against the Revenue and in favour of the assessee. Question No. 6: In the affirmative, against the Revenue and in f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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