Commissioner of Income Tax vs Shri Ram Refrigeration Industries Ltd.

Arijit Pasayat, C.J.—At the instance of revenue, following question has been referred for opinion of this Court u/s 256(1) of the income tax Act, 1961 (''the Act''), by the Tribunal, Delhi Bench ''B'' :

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the sum of Rs. 1,48,492 is allowable as revenue expenditure ?

Dispute relates to the assessment year 1974-75. The assessee, a company, filed its return of income for the assessment year in question for which the previous year ended on 30-9-1975.

The assessee incurred an expenditure of Rs. 1,48,492 on the following heads :

Rs.

"1. Cable Work/telephone points

29,962

Wooden partitions

85,591

Wall tiles and toilets

3,252

Furniture upholstery and curtains

10,361

Sanitary fitting works

6,000

Wall pelmets/apaintiage

13,326

1,48,492"

Before the ITO it was claimed that this expenditure was incurred on rented premises not belonging to the assessee and was, therefore, allowable as a revenue expenditure. The ITO did not accept this contention relying on the provisions of section 32(1A) introduced in the Act with effect from 1-4-1971. Matter was carried in appeal before the AAC. Before the said authority the assessee claimed that when the entire expenditure on installation of a telephone was being allowed as revenue expenditure, there was no justification for disallowing Rs. 29,962. It was explained that the amount was incurred for providing extension of telephone facility to certain rooms. The AAC accepted the assessee''s submission and directed deletion of the disallowance. So far as expenditure of Rs. 85,591 on wooden structure is concerned, it was submitted that the same could not be treated as capital in nature because no asset of an enduring nature came into existence by incurring this expenditure. It was also pleaded that the rate of depreciation on purely temporary erection such as wooden structure was 100 per cent and on that ground also the entire expenditure should be allowed. The AAC accepted the stand and directed deletion of disallowance of Rs. 85,591. Similar direction was given in respect of other expenses under the different heads enumerated above. Order of the AAC was challenged before the Tribunal. The stand that in view of section 32(1A) the expenses were not allowable, was reiterated before the Tribunal. It appears that the Tribunal did not consider this aspect in the background of section 32(1A), more particularly in respect of wooden partitions. Reference was made by the Tribunal to section 37 of the Act to hold that the expenditure incurred was allowable as revenue expenditure. On being moved for reference, the question as set out above has been referred for opinion of this Court.

We have heard the learned counsel for the parties. According to learned counsel for the revenue, all the six heads of expenditure were relatable to capital assets and were, therefore, covered by the provisions of section 32(1A). The learned counsel for the assessee, on the other hand, submitted that the basic requirement of section 32(1A) is that there should be expenditure of a capital nature and that too in relation to and by way of renovation or extension of or improvement to the building. It is stated that the conditions requisite for bringing in application of section 32(1A) are absent and, therefore, the Tribunal was justified in its conclusion. We find that the Tribunal has not addressed itself as to the applicability of section 32(1A) even though that was the main challenge. It is more so in case of wooden partitions. In that view of the matter we feel it would be appropriate for the Tribunal to re-hear the appeal only to the limited extent of applicability of section 32(1A) to the claim relatable to wooden partitions. So far as other expenses are concerned, we do not find any infirmity in the conclusions of the Tribunal to warrant any interference. The matter is, accordingly, remitted back to the Tribunal to the extent indicated above.

The reference stands disposed of.