1976 (10) TMI 45 - AT - Income Tax

Appellate Tribunal grants depreciation on research assets, allows factory shift expenditure, disallows gratuity provision claim.

The Appellate Tribunal ruled in favor of the assessee in the Income-tax Act appeal. The Tribunal directed the Income-tax Officer to grant depreciation ... - Issues:1. Claim for depreciation on assets used for scientific research.2. Allowance of expenditure for shifting of factory.3. Allowance of provision for gratuity.4. Excess interest charged by the Income-tax Officer.Issue 1:The appeal under the Income-tax Act, 1961 involves the assessee's claim for depreciation on assets used for scientific research. The Income-tax Officer rejected the claim, citing s. 35(2)(iv) which states that no depreciation is to be granted for the same previous year for which deduction was given under s. 35. However, the Appellate Tribunal held that the deduction under s. 35 is meant to incentivize the assessee and does not negate the right to claim depreciation on assets used for scientific research. The Tribunal emphasized the close connection between scientific research and the business being carried on, stating that modern industries must undertake scientific research to remain competitive. The Tribunal ruled in favor of the assessee, directing the Income-tax Officer to grant the depreciation allowance on the assets used in scientific research.Issue 2:The second ground pertains to the allowance of expenditure incurred for shifting the assessee's factory. The Income-tax Officer disallowed the claim, relying on a Supreme Court decision regarding capital expenditure. The Appellate Assistant Commissioner upheld the disallowance, stating that the shifting of the factory resulted in an enduring benefit to the assessee. However, the Appellate Tribunal differentiated this case from the precedent cited, emphasizing that the shifting was necessitated by external factors and did not bring enduring benefits. The Tribunal held that the expenditure was laid out wholly and exclusively for the purpose of business and directed the Income-tax Officer to allow the same.Issue 3:The third ground concerns the allowance of a provision for gratuity debited on an actuarial basis. The Income-tax Officer initially disallowed the claim, and subsequently, a new subsection was inserted in the Act regarding the deduction for provisions made for gratuity. The Appellate Assistant Commissioner rejected the claim based on the new subsection's conditions not being satisfied. The Appellate Tribunal concurred with the Revenue, as the assessee did not attempt to fulfill the conditions laid down by the new subsection, leading to the disallowance of the provision for gratuity.Issue 4:The final ground relates to the excess interest charged by the Income-tax Officer under s. 215 of the Act. While no appeal is provided by the Act for interest chargeable under s. 215, the Tribunal noted that if there was an oversight in charging excess interest, the Income-tax Officer should rectify it in accordance with the law. The Tribunal partially allowed the assessee's appeal, indicating success on certain grounds while upholding the decision on others.