1977 (4) TMI 8 - HC - Income Tax

High Court: Power subsidy taxable, railway bridge costs deductible. Depreciation allowed on roads.

Panyam Cements And Mineral Industries Limited Versus Additional Commissioner Of Income-Tax, AP

Panyam Cements And Mineral Industries Limited Versus Additional Commissioner Of Income-Tax, AP - [1979] 117 ITR 770, 1977 CTR 255 Issues Involved:1. Taxability of power subsidy received by the assessee.2. Deductibility of expenditure incurred for constructing a railway overbridge as business expenditure.3. Allowability of depreciation on roads and bridges.Issue-wise Detailed Analysis:1. Taxability of Power Subsidy:The primary issue was whether the amounts of Rs. 1,54,561 and Rs. 51,821 received from the Government of Andhra Pradesh as power subsidy for the assessment years 1966-67 and 1967-68, respectively, were taxable under the Income-tax Act, 1961. The assessee argued that these sums were not taxable as they were in the nature of a windfall and casual income. However, the Income-tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) held that the subsidy was a revenue receipt and taxable. The High Court agreed with the lower authorities, stating that the subsidy was granted as part of a well-defined government policy to supply electricity at concessional rates to certain industries. The court concluded that the subsidy amounted to a reduction in electricity charges and was directly connected to the business operations of the assessee. Therefore, it was deemed as profits and gains of business under Section 41(1) of the Income-tax Act, 1961, and chargeable to income-tax.2. Deductibility of Expenditure on Railway Overbridge:The second issue concerned the deductibility of Rs. 66,684 paid by the assessee to the Railways for constructing an overbridge at an unmanned level crossing. The ITO had disallowed this expenditure, considering it a capital expenditure, as it resulted in an asset of enduring nature. However, the Tribunal allowed the deduction, viewing it as an expenditure incurred for the safety and efficiency of the business operations. The High Court upheld the Tribunal's decision, referencing the Supreme Court's ruling in Lakshmiji Sugar Mills Co. P. Ltd. v. CIT, which allowed similar deductions for expenditures made for business efficiency and safety. The court reasoned that the construction of the overbridge was essential for the safety of the employees and vehicles, thereby facilitating the business operations. Hence, the expenditure was considered revenue in nature and deductible.3. Allowability of Depreciation on Roads and Bridges:The third issue was whether the assessee was entitled to depreciation on roads and bridges. The ITO and AAC disallowed the claim, arguing that roads do not qualify as depreciable assets. However, the Tribunal directed the ITO to grant depreciation based on the nature of the roads. The High Court supported the Tribunal's view, stating that roads constructed within the factory premises involved construction and should be treated as part of the building. The court noted that roads, like buildings, depreciate over time depending on the materials used. Therefore, the assessee was entitled to claim depreciation on roads as per the Income-tax Rules.Conclusion:The High Court answered the questions as follows:1. The amounts received as power subsidy are taxable under the Income-tax Act, 1961.2. The expenditure incurred for constructing the railway overbridge is deductible as business expenditure.3. The assessee is entitled to claim depreciation on roads and bridges.In summary, the High Court affirmed the taxability of the power subsidy, allowed the deduction for the expenditure on the railway overbridge, and permitted depreciation on roads and bridges, thereby providing a comprehensive resolution to the issues raised.