1982 (6) TMI 78 - AT - Income Tax

Appeal allowed for 1975-76, capital expenditure confirmed, depreciation granted. Relief under section 80HH computed without deductions.

The appeal for the assessment year 1975-76 was allowed in part, confirming the capital nature of the expenditure on asphalting roads but allowing ... - Issues Involved:1. Whether the expenditure incurred on asphalting of certain roads should be treated as capital or revenue expenditure.2. Whether the relief under section 80HH of the Income Tax Act should be computed on the total income without deducting unabsorbed depreciation and unabsorbed development rebate.Issue-wise Detailed Analysis:1. Treatment of Expenditure on Asphalting Roads:- The primary issue was whether the expenditure incurred by the assessee on asphalting certain roads should be classified as capital expenditure or revenue expenditure. The assessee argued that the expenditure was for current repairs of existing roads, thus should be treated as revenue expenditure.- The Income Tax Officer (ITO) disallowed the claim, treating the expenditure as capital in nature. The Appellate Assistant Commissioner (AAC) upheld this view, noting that the roads were within the premises of the assessee and provided an enduring benefit.- The Tribunal initially set aside the AAC's order and remanded the matter back to the ITO for fresh assessment. However, no new evidence was presented, and the ITO again disallowed the claim.- The Commissioner of Appeals (Commr. Appeals) also upheld the ITO's decision, distinguishing the case from the ruling in L.M. Sugar Factory and Oil Mills Pvt. Ltd. vs. CIT (1980) 125 ITR 293 (SC) because the roads in question were within the factory premises.- The Tribunal considered the certificate from Recondo Ltd., which stated that the roads were already in existence and were merely asphalted. The Tribunal accepted this certificate, concluding that the expenditure related to asphalting of existing kutcha roads.- However, the Tribunal held that the expenditure was capital in nature, as the roads were situated inside the premises and belonged to the assessee, thus providing an enduring benefit. This conclusion was supported by the ruling in Panipat Coop. Sugar Mills Ltd. vs. CIT, Patiala (1977) 108 ITR 111 (P&H), which emphasized that expenditure on roads belonging to the assessee is capital in nature.- Consequently, the Tribunal confirmed the Commr. Appeals' finding that the expenditure was capital in nature but allowed depreciation on the same.2. Computation of Relief under Section 80HH:- The second issue was whether the relief under section 80HH should be computed on the total income without deducting unabsorbed depreciation and unabsorbed development rebate.- The assessee argued that the relief should be granted on the total income of the current year without such deductions, relying on the ruling in Cloth Traders Pvt. Ltd. (1979) 118 ITR 243 (SC).- The Commr. Appeals rejected this claim, relying on the rulings in Jaipuria China Clay Mines Pvt. Ltd. (1966) 59 ITR 555 (SC) and Cambay Electric Supply Industrial Co. Ltd. (1978) 113 ITR 84 (SC), which suggested that relief should be computed after adjusting unabsorbed depreciation and development rebate.- The Tribunal found merit in the assessee's contention, noting that the wording of section 80HH is similar to section 80M, under which the Supreme Court had ruled in Cloth Traders Pvt. Ltd. that relief should be computed on the gross total income without adjustments.- The Tribunal distinguished the ruling in Cambay Electric Supply Industrial Co. Ltd., noting that it applied to section 80E, which explicitly required computation in accordance with other provisions of the Act.- Therefore, the Tribunal held that the relief under section 80HH should be computed on the total income of the current year without deducting unabsorbed depreciation and development rebate, aligning with the ruling in Cloth Traders Pvt. Ltd.Conclusion:- The appeal for the assessment year 1975-76 was allowed in part, confirming the capital nature of the expenditure on asphalting roads but allowing depreciation on the same. The relief under section 80HH was to be computed without deducting unabsorbed depreciation and development rebate.- The appeal for the assessment year 1976-77 was dismissed, upholding the earlier findings.