1989 (10) TMI 5 - HC - Income Tax

Court Rules on Deductibility of Conditional Subsidy and Messing Expenses

The court ruled in favor of the Revenue regarding the conditional subsidy received under a housing scheme, stating it did not qualify as part of the ... Actual Cost, Business Expenditure, Depreciation, Entertainment Expenditure Issues:1. Whether conditional subsidy received under a housing scheme forms part of actual cost for depreciation deduction.2. Whether messing expenses for providing meals at a guest house are allowable as deduction under section 37.3. Whether expenses incurred for providing tea, cold drinks, etc., to constituents visiting business premises are allowable as deduction under section 37.Analysis:Issue 1:The Tribunal had to decide if the conditional subsidy received by the assessee under a housing scheme should be considered as part of the actual cost for claiming depreciation deduction. The Income-tax authorities held that the subsidy did not form part of the actual cost and, therefore, depreciation could not be claimed on that amount under section 32 of the Income-tax Act, 1961. The court, based on a previous decision, ruled in favor of the Revenue, stating that the amount received as a subsidy did not qualify as part of the actual cost for depreciation purposes.Issue 2:The question arose regarding the allowability of messing expenses incurred by the assessee for providing meals at a guest house under section 37 of the Income-tax Act. The Revenue contended that these expenses were in the nature of entertainment expenses and should not be allowed as a deduction. However, the court disagreed with this argument, stating that the expenses being disallowable under a different subsection of section 37 was not raised or considered by the Tribunal. Therefore, the court ruled in favor of the assessee, allowing the messing expenses as a deduction.Issue 3:The third issue involved the deductibility of expenses incurred in providing tea, cold drinks, etc., to constituents visiting the business premises under section 37 of the Income-tax Act. The Revenue argued that these expenses were in the nature of entertainment expenses and should not be allowed as a deduction. The court, following the same reasoning as in issue 2, found that the question of disallowance under a different subsection of section 37 was not raised or considered by the Tribunal. Therefore, the court ruled in favor of the assessee, allowing these expenses as a deduction.In conclusion, the court answered question 1 against the assessee and in favor of the Revenue, while questions 2 and 3 were answered in favor of the assessee and against the Revenue. No costs were awarded in this judgment.