1983 (8) TMI 69 - AT - Income Tax

Appeal partially allowed, grounds split. Exchange difference disallowed, medical expenses & more in favor.

The appeal was partially allowed, with some grounds decided in favor of the assessee and others against. The disallowance of exchange difference on loan ... Business Expenditure Issues Involved:1. Disallowance of exchange difference on repayment of loan.2. Inclusion of commission and medical expenses in remuneration under section 40(c).3. Inclusion of personal accident insurance premiums under section 40(c).4. Inclusion of house rent allowance in 'salary' under section 40A(5).5. Disallowance of extra shift allowance on exhaust fans.6. Disallowance of legal charges for amendment of memorandum of association.7. Disallowance of debit balances written off.8. Disallowance of expenditure for the issue of bonus shares.Detailed Analysis:1. Disallowance of Exchange Difference on Repayment of Loan:The Commissioner (Appeals) disallowed the exchange difference amounting to Rs. 71,050 on the repayment of a loan taken for the purchase of machinery. The assessee's counsel referenced the case of Poysha Industrial Co. Ltd. v. ITO [1983] 4 ITD 41 (Bom.) (SB), which was against the assessee. Consequently, this ground was decided against the assessee.2. Inclusion of Commission and Medical Expenses in Remuneration under Section 40(c):(a) The Commissioner (Appeals) included the payment of commission to managing directors as part of remuneration or benefit under section 40(c). The Special Bench of the Tribunal in Mettur Chemical & Industrial Corpn. Ltd. v. ITO [1983] 3 ITD 612 (Mad.) decided against the assessee, thus this point was also decided against the assessee.(b) Regarding the reimbursement of medical expenses, the Special Bench decision in Blackie & Sons (India) Ltd. v. ITO [1983] 3 SOT 72 (Bom.) was in favor of the assessee. Respectfully following this decision, this point was decided in favor of the assessee.3. Inclusion of Personal Accident Insurance Premiums under Section 40(c):The Commissioner (Appeals) included premiums paid for personal accident insurance of the managing directors in the computation of disallowance under section 40(c). The decision in CIT v. Vinay Bharat Ram [1980] 4 Taxman 207 (Delhi) supported the assessee's stance, and thus, this ground was decided in favor of the assessee.4. Inclusion of House Rent Allowance in 'Salary' under Section 40A(5):The Commissioner (Appeals) included the house rent allowance amounting to Rs. 10,486 paid to employees as part of 'salary' under section 40A(5). The assessee's counsel cited decisions of the Calcutta High Court in Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827 and Simon Carves India Ltd. v. CIT [1983] 141 ITR 712. However, the Kerala High Court's decision in CIT v. Toshiba Anand Lamps Ltd. [1983] 13 Taxman 392 was against the assessee. Following this ratio, the ground was decided against the assessee.5. Disallowance of Extra Shift Allowance on Exhaust Fans:The Commissioner (Appeals) disallowed extra shift allowance on exhaust fans costing Rs. 58,339, considering them as fans simpliciter. The Tribunal's decision in Saraspur Mills Ltd. [IT Appeal No. 835 (Ahd.) of 1982] was in favor of the assessee. Following this reasoning, this ground was decided in favor of the assessee.6. Disallowance of Legal Charges for Amendment of Memorandum of Association:The Commissioner (Appeals) disallowed legal charges of Rs. 300 paid for the amendment of the object clause of the memorandum of association. The Tribunal directed the ITO to allow the amount as a deduction from income under section 37 of the Act, considering the nominal amount involved. Therefore, this ground was decided in favor of the assessee.7. Disallowance of Debit Balances Written Off:The Commissioner (Appeals) disallowed debit balances amounting to Rs. 3,574 written off in the books of account. The Commissioner directed the ITO to reconsider the assessee's claim under section 36(2)(iv) of the Act. The Tribunal directed the ITO to consider the claim without restricting it to section 36(2)(iv) and pass the appropriate order in accordance with the law.8. Disallowance of Expenditure for the Issue of Bonus Shares:The Commissioner (Appeals) disallowed expenditure of Rs. 38,948 incurred for the issue of bonus shares. The assessee's counsel referenced decisions in CIT v. Kisenchand Chellaram India (P.) Ltd. [1981] 130 ITR 385 (Mad.) and India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), arguing that the expenditure for bonus shares is distinguishable from that for additional right shares. The Tribunal concluded that the issue of bonus shares is akin to the distribution of dividends in specie and does not bring in additional finance or cash, thus not constituting a capital expenditure. Therefore, this ground was decided in favor of the assessee.Conclusion:The appeal was allowed in part, with some grounds decided in favor of the assessee and others against.