Rajasthan High Court - Jaipur
Jaswant Trading Co. vs Commissioner Of Income-Tax on 21 July, 1994
JUDGMENT
1. The Income-tax Appellate Tribunal has referred the following questions of law arising out of its order dated February 13, 1986, under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1981-82 :
"1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on the copper rolls at 30 per cent. ?
2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to shortage on copper rolls over and above the depreciation allowed to it on the use of the copper rolls ?
3. Whether, on the facts and in the circumstances of the case, the development charges paid to RIICO is in the nature of capital or revenue ?
4. Whether, on the facts and in the circumstances of the case, the payment made to RIICO for water-treatment plant is capital or revenue in nature ?
5. Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on the printing tables at 15 per cent. ?
6. Whether, on the facts and in the circumstances of the case, the amount of Rs. 5,222 paid to RIICO for legalising the unauthorised construction is an allowable expenditure ?"
2. The brief facts of the case are that the assessee is carrying on the business of printing and sale of cloth. For the purpose of printing, the assessee is required to have printing tables and the use of copper rolls. Various designs were engraved on such copper rolls with the help of which printing designs are done on the cloth. It was claimed that depreciation on these copper rolls should be allowed at the rate of 30 per cent. and the shortage on the copper rolls should also be allowed. The Commissioner of Income-tax (Appeals) allowed the contention of the assessee and granted depreciation on the copper rolls at 30 per cent. The claim of shortage of copper rolls was also allowed. The Tribunal has also upheld the order of the Commissioner of Income-tax (Appeals) and allowed depreciation on copper rolls at 30 per cent. The claim of the assessee regarding shortage of copper rolls was disallowed on the ground that the same would be covered by the depreciation provided to the assessee. So far as the first question is concerned, this matter was considered by this court in the case of CIT v. Vandana Printers [1993] 203 ITR 165, D.B. Income-tax Reference No. 29 of 1984, decided on March 11, 1992, in which it was held that on the proper interpretation of entry D-10 of Part I(iii) of Appendix I to the Income-tax Rules, depreciation on the printing rolls is not allowable at 30 per cent. Following the said decision, we are of the view that the assessee is not entitled to depreciation on copper rolls at 30 per cent.
3. In respect of the second point, it has been observed by the Income-tax Officer that the shortage in copper rolls during the engraving process is claimed and included under the head "factory overhead expenses" debited to the trading account. The Income-tax Officer found that the claim of the assessee is not allowable when the entire design expenses are separately allowed as revenue expenditure. The Income-tax Appellate Tribunal found that the shortage in respect of copper due to repeated engraving could have been allowed to the assessee if the copper rolls were in the nature of tools and implements which are used in the process of manufacturing. It was found in the present case that the copper rolls are capital assets on which depreciation is allowed and, therefore, the assessee is not entitled to claim shortage in the copper rolls. The shortage would, however, be covered by the depreciation in the copper rolls themselves. The additional deduction in respect of shortage in copper rolls was found not justified. On going through the assessment order, we find that the entire design expenses have already been allowed as revenue expenditure and the assessee cannot claim the alleged shortage additionally. If the rolls have become obsolete or scrap then the assessee is entitled to get the balancing charge in that year. On this interpretation of law, we are of the view that the assessee is not entitled to shortage on copper rolls over and above the depreciation allowed to it on the use of copper rolls.
4. The assessee had taken a plot of land on lease from RIICO and erected a factory-shed thereon. RIICO charged the assessees expenses of development as development charges of the industrial area. The development included provision of facilities such as roads for convenience, electricity lines, etc. These development charges have been claimed as revenue expenditure by the assessee. After going through the various clauses with regard to the development charges, the Tribunal observed that this development expenditure have been incurred by RIICO so that the entire industrial belt is developed according to the standards fixed by RIICO. The development has to be made by the assessee himself and, in that event the expenditure so incurred by the assessee would be definitely capital in nature though the land is a leasehold land. The expenditure was held to be capital in nature. This matter was considered by this court in the case of Manoj Dyeing Co. v. CIT [1995] 212 ITR 299 (D.B. Income-tax Reference No. 6 of 1987, decided on October 14, 1992), and it was held that the development charges paid by the entrepreneur are capital in nature. Following the said decision, we are of the view that the Income-tax Appellate Tribunal was justified in coming to the conclusion that the said charges are capital in nature.
5. The assessee has made payment to RIICO for the water-treatment plant. It was found by the Tribunal that the contribution towards the water pollution treatment plant scheme by the assessee to RIICO is, because RIICO had to install the plant and the factories had to make their contribution for the plant. The Tribunal has held that the expenditure is revenue expenditure for the smooth running of the business. Reliance has been placed on the decision of the apex court in the case of Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376. The decision relied on by the Tribunal was based on the fact that no finding was recorded that the roads were altogether new or that an enduring benefit was derived by the assessee from those roads. The expenditure was allowed to be revenue in nature, as it was found that it was incurred for the purpose of facilitating the running of its motor vehicles and other means employed for transportation of sugarcane to its factories and was, therefore, incurred for running the business or working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself. In the present case, it is not in dispute that if the water-treatment plant was installed by the assessee himself, he would not have been entitled to claim it as revenue expenditure. If RIICO as a catalyst agent acted on behalf of a number of entrepreneurs in installing the plant which has given an enduring benefit to all the units, it cannot be considered to be revenue expenditure. We are, therefore, of the opinion that the payment made to RIICO for the water-treatment plant is capital expenditure.
6. The assessee has claimed depreciation on printing tables at the rate of 15 per cent. The Commissioner of Income-tax (Appeals) allowed the same on the ground that the tables come into contact with corrosive chemicals. The Tribunal found that the tables are used for printing, which printing is done with the help of chemicals, and as such, the tables come into contact with the corrosive chemicals. The depreciation was held allowable at 15 per cent. So far as this point is concerned, where a finding of fact has been given by the Tribunal that the tables are used for printing, which printing is done with the help of chemicals and, therefore, the tables come into contact with corrosive chemicals, is a finding of fact, and we do not find any ground justifying/interfering with such a finding. It is, therefore, held that the assessee is entitled to depreciation on the printing tables at 15 per cent.
7. The last point is with regard to the payment of Rs. 5,222 paid to RIICO for legalising the unauthorised construction. The Income-tax Officer came to the conclusion that the amount so paid for infringement of administrative laws cannot be said to be incidental to carrying on of the business. Before the Commissioner of Income-tax (Appeals), it was submitted that though the name given to payment is penalty, it is not penalty in the sense that it should have been disallowed. It was not related to any violation of law but merely for a breach of the contract with RIICO. The constructions which were objected to by RIICO were in the interest of business for its efficient and smooth running. The Tribunal proceeded on the basis of the letter received from RIICO dated January 19, 1980, whereby they have recovered the charges of unauthorised construction. The construction of the factory-shed was beyond the limit sanctioned by the RIICO and, therefore, it was found that the payment was with a view to facilitate business operations. The Tribunal observed that the payment was with a view to obtain sanction of the authorities for the extra construction so carried on. Therefore, it was in the nature of business expenditure.
8. We have considered the matter. The charges which are levied are for the extra area covered than earlier sanctioned by RIICO, and such area of the factory-shed was used for business purposes. The charges paid for regularising such extra construction were for the purpose of business. Such an expenditure is allowable under Section 37 of the Act and the assessee gained an extra advantage for his business. The expenditure was directly to facilitate the carrying on of the business alone, as it has not been stressed that there was any infraction/violation of any law. But, it was pointed that only on account of the construction of the factory-shed at an area more than permitted by RIICO, the amount had been paid. It was only to legalise the unauthorised construction, which was made for the purpose of business and was exclusively for the business. In these circumstances, we are of the view that the amount of Rs. 5,222 paid to RIICO for legalising the unauthorised construction is an allowable expenditure.
9. All the six questions referred are answered accordingly. No order as to costs.