TaxTMI 
TaxTMI 
2011 (5) TMI 31
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....ence is both ingenious and novel. The question raised is the product of experience, deftness and obvious artfulness of the petitioner who is a seasoned, experienced and an eminent Advocate of the country. 3. What is at the heart of the matter, as a matter of fact, is the heart itself. When one speaks of heart it brings forth imagery of myriad emotions. Emotions which encompass, often varied passions, of soulful love, abominable deceit, unremitting treachery and revenge. No two individuals deal with matters of heart similarly; often confounded, as to how to deal with it - which is why a famous lyricists expounds on this very peculiar quandary thus: DIL-E-NADAN TUJHE HUA KYA HAI AKHIR ESS DARD KE DAWA KYA HAI. (Here heart is personified. It is asked of it what ails it? What is the remedy for the malady). 3.1 But then here we are concerned with the nuts and bolts of what most would consider straight forward application of the provisions of the IT Act. Therefore, before one gets into the legal nitty gritty, a brief mention of the facts would be useful : 4. In the year in issue i.e., assessment 1983-84, the assessee had filed a return declaring a total income of Rs 2,15,....
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....lly, to a figure of over Rs 20 lakhs. 7. The assessee submitted that the word „plant‟ defined under Section 43(3) of the I.T. Act, was wide and varied. According to the assessee, the definition being inclusive, took within its fold, things like ships, vehicles, books, scientific apparatus and surgical equipments used for the purposes of business or profession. 7.1 Therefore, on a parity of reasoning, the assessee argued, that just like, for a professional musician, plant, would include musical instruments used by him in connection with his profession, and thus have a case to claim deduction in respect of expenses incurred on its repair or, even expenses incurred by a vocalist on repair of his vocal cords; a lawyer ought be allowed deduction of expenses incurred on repair of his heart under Section 31 of the I.T. Act. Similar examples were given of other situations such as a cricketer and a guitarist making use of their fingers and having to incur expenses in case they required repair. 7.2 Plethora of case law was also cited in this regard. Since almost identical case law has been cited before us, they are dealt with by us, in the later part of the judgme....
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.... account of expenses incurred on repair of plant under Section 31, it should be relatable to an asset of the business or that of the profession. Therefore, if expenses on repair of plant had been incurred it would necessarily have to be disclosed in the books, before expenses incurred on it, could be claimed as a deduction under Section 31 of the I.T. Act. The plant, which is undoubtedly an asset would necessarily have to be shown on the asset side of the balance sheet, and if it is so shown in the balance sheet it would have to carry an acquisition cost. The Assessing Officer was of the view that such was not the case where a human body was involved. The Assessing Officer came to the conclusion based on the judgment in the case of Norman Vs. Golder (Inspector of Taxes) (1945)13 ITR 21 that a human body was not a plant. In this regard the judgments in the case of Yarmouth Vs. France 1887 Knives and Hinton Vs. Maden and Iyerland Ltd. 39 ITR 357, electrical fittings and other office applicances 71 ITR 587 etc. were distinguished. 7.9 The Assessing Officer thus, rejected the claim of the petitioner even under Section 31 of the IT Act. 8. Accordingly, expenses in issue were added....
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....ding to the Tribunal, expenses incurred on the repair of their fingers since they are used as a tool of their trade for furthering their professional activities. Similarly, a vocalist may be able to claim such like expenses incurred in repair of his vocal cord. This, however, was not the case of a lawyer claiming expenses incurred on repair of his heart. 10.2 The Tribunal applied the dicta laid down by the Court of Appeal in Norman Vs. Golder (Inspector of Taxes) that a tax payer‟s body could not be regarded as a plant. Like the authorities below, even the judgment in Mehboob Productions was distinguished on the ground that the expenses in that case were incurred by the company qua its Director. The expenses of the company, which was the assessee in that case, were allowed on the principles of commercial expediency; having been incurred wholly for the purpose of the business of the company. Insofar as the company was concerned, the expenses could not be regarded as personal in nature. The assessee, therefore, could not claim parity, as the facts in Mehboob Productions were distinguishable from those obtaining in the instant case. Therefore, Tribunal came to the conclusion ....
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....6 ITR 66 Scientific Engineering House Pvt. Ltd. Vs. CIT at page 95/97 11.2 Apart from the submissions made on behalf of assessee, that the expenditure incurred was not to undertake a life saving medical procedure, but to enhance professional efficacy of the assesee, it was also contended once again before us, based on the judgment in the case of Mehboob Productions that if expenditure incurred by the company qua its Director (who was the driving force in the company and had travelled abroad for its work) was allowable as expenditure, there was no reason to deny a lawyer deduction on account of repair of his heart against his professional income. 11.3 The Tribunal having observed that a lawyer sharpens his professional skill not by using his heart, but using his brain, could it then be said that a lawyer would be allowed deductions for expenses incurred on brain surgery as against those incurred on medical procedure involving the human heart; 11.4 Lastly, Tribunal having accepted that the assessee had incidently benefitted by this medical procedure in undertaking his professional activities, the claim ought to be allowed as a deduction. 12. As against this, in rebuttal, ....
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....eral precedents, broadly provided the contours of the kind of expenses which could be considered commercially expedient. One such expense being that which was incurred was for preventing extinction of business. The point to be noted is that, in this case, the expense was directly and immediately beneficial to the trade in which the club was engaged. 14. The second case cited by the petitioner is the judgment of the Bombay High Court in Tata Sons (supra). In this case, the assessee, which was a limited company, held a managing agency of another company i.e., Tata Iron and Steel Company Ltd. (in short, TISCO). The terms of the managing agency were incorporated in the agreement dated 02.05.1948. By virtue of this agreement, the assessee company was to be paid commission at different rates, which were to be computed based on the net profits of TISCO. In the assessment year in issue, the assessee company had paid half share of the bonus which the managed company paid to its officers. The question which arose was, whether it could claim deduction in respect of a portion of the said sum. From the record, the following facts emerged :- 14.1. The assessee company was entirely dependen....
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....axed to the extent of 40%, whereas income from coffee was wholly exempted. However, income from coffee curing works was wholly taxable. The finding of the Tribunal was that these businesses were separate. In the background of these facts, the issue which arose was whether the entire depreciation in respect of asset in the head office would be deductible from the taxable income and that in this regard there was no justification, as far as depreciation was concerned, to bifurcate and disallow any portion thereof. 15.2 The ITO allowed only a proportionate part of the depreciation. The Appellate Assistant Commissioner ( in short, AAC) sustained the order of the ITO. The matter was carried in appeal to the Tribunal. The Tribunal came to the conclusion that the assessee had to maintain a head office, and that merely because the head office also supervised the coffee estates, the income from which was not taxable, a bifurcation could not be made between the user of the assets towards taxable sources of income and non-taxable sources of income. The Tribunal further observed that as the assets had been utilized for earning taxable income, there was no justification for bifurcation and th....
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....ncerned with. The facts of this case briefly are as follows : 16.3 One Mehboob Khan, Director of the assessee company, while on tour of USA suffered a serious heart attack. Mr. Mehboob Khan had to be hospitalized. In that connection, a sum of Rs.33,667/- was incurred on his illness. It is pertinent to note that Mr. Mehboob Khan had visited USA as „Mother India‟ was one such foreign film which had been nominated for an award by the Academy of Arts and Sciences, Hollywood. On his return from the USA, the Board of Directors passed a resolution to the effect that the entire expenditure on the treatment of Mr. Mehboob Khan would be borne by the assessee company. The expenditure incurred was debited to the assessee company‟s account. The ITO rejected the assessee company‟s claim. The ITO was of the view that the expenditure incurred had directly benefitted Mr. Mehboob Khan, who had a substantial interest in the assessee company. The AAC confirmed the order of the ITO with regard to the claim for deduction of medical expenses. 16.4 In a further appeal, the Tribunal, however, in respect of medical expenses accepted the contention of the assessee company....
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....g in his employment. The defendant was a wharfinger and a warehouseman in London. The plaintiff was given a horse and a trolley for the purpose of delivering goods to the designated consignees. After the job was done, the plaintiff was required to return the trolley to the employer‟s premises and stable the horse thereafter. The plaintiff had been in the defendant service prior to the institution of the action for a period of four years. In one particular year, the defendant had bought a new horse. The horse was under the control and supervision of the defendant‟s stable foreman. The plaintiff found the horse to be a vicious animal who was a "kicker" and a "jibber" and hence dangerous and unfit to be driven. This fact was brought by the defendant to the notice of the stable foreman. The stable foreman persisted with the plaintiff to keep driving the trolley with the said horse and, is stated to have said, that if he met with an accident, they would stand responsible for it. On one unfortunate day, the plaintiff while driving the horse, met with an accident, in as much as, the horse kicked the plaintiff, in which, he broke one of his begs. The question which arose for co....
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....it had the constant habit, whether in a stable or harnessed to a trolley, of kicking whatever was near it, whether a human being or a brick wall. In short, it was a vicious beast that could not be managed or controlled by the most careful driver. The plant, therefore, was defective." 18. As would be noticed, the majority in coming to the conclusion that the horse was a plant, took into account the nature of the business. As noticed above, the nature of the business of the defendant was of a wharfinger which involved goods being carried from the wharf to the houses and the shops or, the warehouses of the consignees. For this purpose, the defendant had to use horses and carts, or wagons. These were necessary for carrying on the business. Since carts and wagons could not but be considered as plants, the court held that horses had to be held as plants as, carts and wagons would be useless without it. As is evident, the case did not involve the provisions of the Income Tax Act. The decision was rendered in the facts and circumstances obtaining in that case and in the background of the provisions of the Employers‟ Liability Act. 19. The next judgment which is referred to by t....
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....n article whether animate or inanimate which is used as a tool of the assessee‟s trade. 19.1 This matter was carried in appeal to the Supreme Court by the Revenue. The Supreme Court in Commissioner of Income Tax Gujarat Vs. Elecon Engineering Co. Ltd. 1987 166 ITR page 66 dismissed the appeal of the revenue in limine by relying on its own judgment in the case of Scientific Engineering House P Ltd. vs CIT (1986) 157 ITR 86. 20. This brings me to the principles enunciated by the Supreme Court in the case of Scientific Engineering (supra). Briefly in this case, amongst others, one of the issues which the court was called upon to decide was whether technical know-how supplied by a foreign collaborator of the assessee company by way of what was termed as „documentation services‟ could be construed as a capital asset of a depreciable nature. 20.1 The assessee company was in the business of manufacturing scientific instruments and apparatus. For the purposes of its business it entered into two separate collaboration agreements with a Hungarian company. The Hungarian company in consideration of a lump sum amount in respect each of the two agreements, agreed t....
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...., the lump sum payment made by the assessee to the foreign collaborator was partly on capital account and, therefore, the remaining part which was expended on revenue account had to be allowed as deduction. Accordingly, the Tribunal confirmed the deduction claimed by the assessee before the ITO though not on the ground of it being a depreciation allowance, but on the ground that it was in the nature of revenue expenditure. 20.5 Aggrieved, both the revenue and the assessee preferred references before the High Court. The High Court took the view that even though the entire amount expended by the assessee represented an expenditure on the capital account, since no depreciable asset was brought into existence the assessee was not entitled to the relief claimed. 20.6 Aggrieved by the judgment of the High Court, the assessee carried the matter to the Supreme Court. The Supreme Court allowed the appeal of the assessee. What is important for our purpose is that the Supreme Court observed that definition of word „plant‟ in Section 43(3) of the I.T. Act was wide. It would include broadly both animate and inanimate things. The court made the following apposite observations: ....
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.... indicated above. Obviously, the purpose of rendering such documentation service by supplying these documents to the assessee was to enable it to undertake its trading activity of manufacturing theodolites and microscopes and there can be no doubt that these documents had a vital function to perform in the manufacture of these instruments; in fact it is with the aid of these complete and upto date sets of documents that the assessee was able to commence its manufacturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. True, by themselves these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility, though owing to technological advances they might or would in coarse of time become obsolete. We are, therefore, clearly of the view that the capital asset acquired by the assessee, namely, the technical know-how in the shape of drawings, designs charts, plans, processing data and other literature falls within the definition of 'plant' and is, therefore, a depre....
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....art is used by, a human being, as a tool of his trade or professional activity. General well being of the heart and its functionality cannot be equated with using the heart as a tool for engaging in trade or professional activity. Atleast the facts in this case do not demonstrate the same. Hence, the petitioner‟s claim for allowing deduction of the expenses incurred by him on his coronary surgery under section 31 of the IT Act, is rejected. 22. This brings us to the alternate claim made by the assessee under section 37 of the IT Act. It is trite law that the claim for deduction under section 37 of the IT Act should satisfy three conditions: firstly, it should be an expense which is incurred wholly and exclusively for the purpose of the assessee‟s business or profession; secondly, it should not be an expense incurred to bring into existence a capital asset; and lastly, it should not be an expense of a personal nature. 22.1 In our view, the assessee‟s claim under section 37 of the IT Act does not fulfil the first condition which is that the expense in issue have been incurred wholly and exclusively for the purposes of the assessee‟s profession. ....