1982 (6) TMI 79 - AT - Income Tax

Tribunal confirms capital nature of road expenditure, allows depreciation. Relief computation method upheld.

The Tribunal upheld the capital nature of road expenditure for the assessee, allowing depreciation on the capital expenditure. The Tribunal directed ... - Issues Involved:1. Whether the expenditure incurred on asphalting of roads is capital or revenue expenditure.2. Computation of relief under Section 80HH of the Income Tax Act.Detailed Analysis:Issue 1: Expenditure on Asphalting of RoadsBackground:The assessee, a distillery, claimed deductions for expenditures on asphalting roads within its premises for the assessment years 1975-76 and 1976-77. The amounts were Rs. 55,768 and Rs. 54,395 respectively. The assessee treated these as current repairs, while the Income Tax Officer (ITO) classified them as capital expenditure, disallowing the deductions.Arguments and Evidence:- The assessee argued that the roads existed before the asphalting, supported by a certificate from Recondo Ltd., which stated that the roads were merely repaired.- The ITO contended that the roads were constructed by the assessee, providing an enduring benefit, thus classifying the expenditure as capital.Tribunal's Findings:- The Tribunal accepted the certificate from Recondo Ltd., acknowledging that the roads existed prior to the asphalting.- The Tribunal referred to the Supreme Court ruling in L.H. Sugar Factory and Oil Mills (P) Ltd. (1980) and the Punjab High Court ruling in Panipat Coop. Sugar Mills Ltd. vs. CIT, which differentiated between roads belonging to the assessee and those that did not.Conclusion:- The Tribunal concluded that since the roads were within the premises and belonged to the assessee, the expenditure provided an enduring benefit and was thus capital in nature. The Tribunal upheld the decision of the Commissioner (Appeals) to allow depreciation on the capital expenditure, confirming the expenditure as capital.Issue 2: Computation of Relief under Section 80HHBackground:The assessee challenged the computation of relief under Section 80HH, arguing that the relief should be calculated on the total income of the current year without deducting unabsorbed depreciation and unabsorbed development rebate from previous years.Arguments and Precedents:- The assessee relied on the Supreme Court ruling in Cloth Traders Pvt. Ltd. (1979), which held that relief under Section 80M should be computed on gross total income without adjustments for carried forward losses.- The Commissioner (Appeals) had relied on the Supreme Court rulings in Jaipuria China Clay Mines Pvt. Ltd. (1966) and Cambay Electric Supply Industrial Co. Ltd. (1978), which supported the deduction of unabsorbed depreciation and development rebate before computing relief.Tribunal's Findings:- The Tribunal compared the wording of Section 80HH with Section 80M and found them to be identical in relevant parts.- The Tribunal concluded that the ruling in Cloth Traders Pvt. Ltd. applied to Section 80HH as well, and thus, the relief should be computed on the gross total income without deductions for unabsorbed depreciation and development rebate.Conclusion:- The Tribunal set aside the order of the Commissioner (Appeals) and directed that relief under Section 80HH be computed on the total income of the current year without deducting the unabsorbed depreciation and development rebate.Final Outcome:- The appeal for the assessment year 1975-76 was allowed in part, confirming the capital nature of the road expenditure but granting the assessee's method for computing relief under Section 80HH.- The appeal for the assessment year 1976-77 was dismissed, upholding the capital expenditure classification.