2000 (9) TMI 37 - HC - Income Tax

Court rules in favor of assessee on royalty & guest house expenses but denies medical reimbursement & depreciation claims.

Commissioner Of Income-Tax Versus Arvind Mills Ltd.

The court ruled in favor of the assessee regarding the allowance of royalty paid to Mettur Beardsell Ltd. for enhancing cloth properties. However, the ... Business Expenditure, Royalty, Amounts Not Deductible, Disallowance, Depreciation Issues:1. Allowance of royalty paid to Mettur Beardsell Ltd.2. Allowance of reimbursement of medical expenses paid to the managing director.3. Deletion of disallowance of guest house expenses and allowance of depreciation on dead stock and furniture.Analysis:Issue 1: Allowance of Royalty Paid to Mettur Beardsell Ltd.The court referred to a previous decision regarding the deduction of expenses related to the trade name 'Tebilized' under section 43A of the Income-tax Act, 1961. It was held that the expenses incurred for conferring an anti-crease property on the cloth, making it more marketable and profitable, were revenue expenditure and thus deductible. Relying on this precedent, the court answered in favor of the assessee, allowing the deduction of Rs. 2,33,300 paid as royalty to Mettur Beardsell Ltd.Issue 2: Allowance of Reimbursement of Medical ExpensesIn this case, the court cited a previous judgment which stated that the sum paid to the managing director for reimbursement of medical expenses should be included in computing the disallowance under section 40(c) of the Income-tax Act, 1961. Consequently, the court ruled against the assessee, disallowing the claim of Rs. 7,771 for reimbursement of medical expenses paid to the managing director.Issue 3: Deletion of Disallowance of Guest House Expenses and Allowance of Depreciation on Dead Stock and FurnitureRegarding the deletion of disallowance of Rs. 8,969 in guest house expenses, the court referred to a previous decision where it was held that such expenses were allowable as they were incurred for the guest house and not for residential accommodation. Therefore, the court ruled in favor of the assessee on this aspect. However, concerning the claim for depreciation on dead stock and furniture in the guest house, the court held that depreciation on the part of the building used as a guest house was not allowable under the relevant section. Consequently, the court answered against the assessee on this part of the issue, in favor of the Revenue.In conclusion, the court answered the reference questions as follows:- Question 1 in favor of the assessee and against the Revenue.- Question 2 against the assessee and in favor of the Revenue.- Part of Question 3 related to guest house expenditure in favor of the assessee and against the Revenue.- The remaining part of Question 3 concerning the claim for depreciation on dead stock and furniture of the guest house against the assessee and in favor of the Revenue. The reference was answered accordingly, with no order on costs.