TaxTMI 
TaxTMI 
2000 (10) TMI 179
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....ng Officer is correct or the view of the Accountant Member that the CIT(A) was justified in directing the Assessing Officer to allow the claim of depreciation on flats and garages as the assessee has paid the entire consideration for the purchase and has taken possession of flats and garages, is justified." ORDER UNDER SECTION 255(4) of THE Income tax ACT U.B.S. Bedi, Judicial Member. - As there is difference of opinion between the members of the Bench who heard this appeal, the following points of difference are referred to the Hon'ble President, Income-tax Appellate Tribunal, for the opinion of the Third Member: "1. Whether, the view of Judicial Member that the disallowance out of Foreign Travelling Expenses claimed at Rs. 10,04,318 be disallowed to the extent of Rs. 6,02,290 as done by Assessing Officer, in view of facts and circumstances and case law cited in his proposed order and corrigendum issued on 15-1-1998 is correct or Ld. Accountant Member's view is correct to hold that the disallowance should be restricted to Rs. 10,746. 2. Whether, in view of facts and circumstances of the case, Judicial Member is justified in disallowing depreciation by restoring the ord....
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....pported by assessee's record and also one of the possession letter shows possession to be not within accounting period, or Ld. Accountant Member is justified in confirming the order of CIT(A) on this point?" 2. It is observed that in question No. 1 proposed by learned Judicial Member, reference has been made to a corrigendum dated 15-1-1988. The said corrigendum has not been signed by learned Accountant Member and the same was never issued so as to carry out the amendment at page 5 of order written by learned Judicial Member. 3. The issue involved in question No. 1 relates to disallowance to the extent of Rs. 6,02,290 made by Assessing Officer out of travelling expenses claimed at Rs. 10,04,318. The brief facts are that Assessing Officer observed from tax audit report that foreign travelling expenses, incurred by the Directors and staff amounted to Rs. 10,04,318. On a query, the assessee submitted details of the expenses. Assessing Officer observed that the assessee was thinking of starting a new hundred per cent Export Oriented Unit (EOU) and Directors and others went abroad in connection with implementation of the said project. He held that the main expenditure on foreign t....
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....er years. Taking a consistent view, he restored disallowance to the extent of 10 per cent. 3.3 Learned Accountant Member observed that reference to 132 ITR 35 was misplaced as decision reported was that of Bhimraj Saremal vs. CED under Estate Duty Act and reference to 169 ITR 14 (statutes) had nothing to do with claim of foreign travelling expenses. He opined that the expenditure on travelling for setting up a new unit by an existing business has to be held as an expenditure of a revenue nature especially so in a case where only the possibilities of expanding the existing business by setting up a new unit were explored but no new unit was in fact established in the accounting year under consideration. He referred to decision in Bralco Metal Industries (P.) Ltd. vs. CIT (1994) 206 ITR 477 (74 Taxman 132.) (Bom.). He, therefore, held that Assessing Officer was not justified in disallowing 50 per cent of travelling expenses treating the same to be of capital nature and CIT(A) was justified in holding that the entire expenditure debited under the head 'foreign travelling expenses' was of a revenue nature. W.r.t. disallowance of 10 per cent of total expenditure being personal in natu....
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....s was in the nature of capital expenditure. In support, ld. DR relied on the following decisions :- (a) CIT vs. S.L.M Maneklal Industries Ltd. (1977) 107 ITR 133 (Guj.), in which the ITO held that the expenditure incurred for acquisition of a capital asset in the shape of designs and drawings was capital expenditure and the claim of the assessee for deduction thereof as revenue expenditure was not tenable. On first appeal, the AAC agreed with the ITO. On further appeal, the Tribunal held that the payments made for user of drawings, designs, etc. could not be said to have brought into existence an asset of an enduring nature, but the payments had been made to get the benefits of licence for the purpose of running the business during the period for which the agreements were entered into with a view to earn profits and, therefore, the payments could not be held to be payments on capital account. The Tribunal held that as in the previous years one-fifth of the expenditure should be allowed as a revenue expenditure. On a reference, High Court held that the know-how and the physical embodiments in the shape of plans, designs, workshop drawings, etc. were clearly included within the me....
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.... enduring benefit and thus the expenditure was capital in nature; (i) V.B.C. Industries Ltd. vs. CIT (1999) 236 ITR 335 (AP), wherein it was observed that the expenditure incurred in connection with project reports was claimed as revenue expenditure and the Tribunal gave a finding that the expenditure incurred was capital expenditure. On an application filed under section 256(2), High Court held that a question of law arose for reference; and (j) CIT vs. Ambica Mills Ltd. (1999) 236 ITR 921 (Guj.), wherein it was observed at page 923 that the expenditure incurred for getting the feasibility report was capital expenditure. 3.5 Learned counsel Shri C. S. Aggarwal along with Shri B. M. Khanna filed a written synopsis, wherein it has been mentioned that reference to 132 ITR 40 was incorrect and correct citation is CIT vs. McGaw Ravindra Laboratories (India) Ltd. (1981) 132 ITR 401 (Guj.). The said decision was approved by the Apex Court in CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (62 Taxman 471.). In the said case, the assessee-company was manufacturing blood transfusion equipment under a collaboration agreement with a foreign company. Its products could be ....
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....ce out of foreign travel relied upon the decisions reported in Alembic Glass Industries Ltd.'s case Hindustan Machine Tools Ltd. (No. 1)'s case and Woodcraft Products Ltd.'s case. In Alembic Glass Industries Ltd.'s case , Hon'ble Gujarat High Court observed that there was inter-connection and inter-dependence between the two units and that the Tribunal was, therefore, justified in law in holding that the new factory at Bangalore did not constitute a new business but was only an establishment of a new unit of the existing business at Baroda. It held that the travelling expenses incurred by the assessee referable to the Bangalore unit were for the purposes of the assessee's business and as such were allowable as revenue expenditure. In Hindustan Machine Tools Ltd. (No. 1)'s case , Hon'ble Karnataka High Court held that there was complete unity and interlacing among all divisions of each unit and all units of the business and the expenditure incurred on new units was allowable as revenue expenditure. In Woodcraft Products Ltd.'s case. Hon'ble Calcutta High Court held that travel expenses incurred in connection with expansion of business which ended in failure was revenue expenditure. ....
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....ome for the assessee-company. With regard to two foreign tours, the ITO allowed one-half of the expenses as revenue expenses and disallowed the remaining half. It was held that the proportion could not be said to be unjustified as the managing director had not furnished any reports about his company to prove the amount of expenditure that could be allowed. In the present case, I have pursued the queries raised by Assessing Officer and replies of the assessee on this issue as placed in the paper book. It is observed that Assessing Officer never called for any such report from the assessee and proceeded to disallow 50 per cent of the expenditure claimed by the assessee for foreign travelling of Directors and staff. I, therefore, feel that even the said case is of no help to the Revenue. 4. The second issue involved in question No. 2 relates to eligibility to claim depreciation in respect of four flats and two garages purchased by the assessee in Antriksha Bhawan, New Delhi. Assessing Officer observed that the assessee had paid Rs. 17,98,194 for purchasing four flats in Antriksha Bhawan. The assessee had also paid Rs. 60,000 for two garages. Assessing Officer noted that in the prec....
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....eciation of non-use of flats for business purposes has been made out and that depreciation cannot be denied. He, therefore, directed Assessing Officer to allow depreciation on flats/garages. 4.2 On further appeal, learned Judicial Member observed that even if the assessee is taken to be owner of these flats, though there was no registered document or mutation yet nothing was placed on record to establish that these flats were used for business purposes. The assessee's own record established that these flats had been shown to be vacant and one of the letters had mentioned the date of possession as 23-11-1991, in respect of flat No. 615. He, therefore, held that the assessee is not entitled to depreciation. 4.3 Learned Accountant Member referred to para 5.1 of order of CIT(A), wherein it has been noted that the assessee had paid an amount of Rs. 17,98,194 for purchase of flats and it also paid Rs. 60,000 for two garages. The assessee had claimed that these flats were used for stocking imported material needed for manufacture of needles to facilitate Purchase Department. Learned Accountant Member referred to decision in CIT vs. Podar Cement (P.) Ltd. (1997) 226 ITR 625 (92 Taxma....
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....In case of part performance, if possession of asset is not with the assessee, it has to be examined whether depreciation is allowable. The assessee has not filed any documentary evidence reg use of flats, garages. e.g. employment of chowkidar, purchase of goods, storage of goods and their further dispatch from the said flats/garages. He, therefore, urged that order of learned Judicial Member may be upheld. 4.5 Ld. counsel relied on order of learned Accountant Member. He referred to the decisions of Hon'ble Supreme Court in the cases of Podar Cement (P.) Ltd. and Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775 (106 Taxman 166). He submitted that the Apex Court have given a very wide meaning to the expression 'owner' used in section 32 and the assessee in possession of a building on part payment of price, where bldg. has not been registered in the name of the assessee, has been held to be owner of building for the purpose of section 32. The Apex Court have held that such assessee is entitled to depreciation. He submitted that the findings that the assets have not been used for the purpose of business is based on no material. In subsequent year, depreciation has been allowed not on....
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....ion of copy of letter placed at page 101, it has been mentioned that actual possession of flat No. 615 in Antriksh Bhawan has been handed over to M/s Groz-Beckert on 23-11-1990. It appears that in middle portion of page, the figures '90' are not very clear and the same have perhaps been read as 91. It is also observed that date of possession of all flats is November 23rd and, therefore, date in respect of flat No. 615 appears to have been noted wrongly in order of learned Judicial Member. In view of clear fact that possession of four flats had been handed over in relevant previous year, the ratio of the aforesaid two decisions of the Apex Court clearly entitles the assessee to depreciation. In so far as usage of the said flats/garages is concerned, the decision in Capital Bus Service (P.) Ltd.'s case is clearly in favour of the assessee. In view of the foregoing, I tend to agree with the conclusion of learned Accountant Member that the assessee is entitled to depreciation in respect of said flats/garages. 5. The matter will now go before the regular Bench for decision according to the majority opinion. Per Mehta. - The aforesaid was the revenue's appeal before the Tribunal in....