M/s. Sree Ayyanar Spinning and Weaving Mills Ltd., Virudhunagar V. DCIT, Madurai

CO 76/CHNY/1994

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5069 (ITAT-CHENNAI)
• Duration Of Justice: 15 year(s) 11 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-08-2010
• Assessment Year: 1990-1991
• Appeal Filed On: 13-09-1994
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DUTTA
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Business expenditure; Capital expenditure

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL: C- BENCH: CHENNAI (BEFORE SHRI HARI OM MARATHA, JUDI CIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTA NT MEMBER) C.O. NO. 76/MDS/94 (IN ITA NO.427/MDS/94) ASSESSMENT YEAR 1990-91 M/S SREE AYYANAR SPG. & WVG. MILLS LTD, VS. THE DCIT, MILL PREMISES, MALLANGINAR 620109 SPL. RANGE I, MADURAI (PAN 47-016-CY-3947) (CROSS-OBJECTOR) (RESPONDE NT) CROSS-OBJECTOR BY: SHRI S.SRIDHAR RESPONDENT BY: SHRI TAPAS KUMAR DUTTA, CIT-DR ORDER PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER THESE ARE CROSS OBJECTIONS FILED BY THE ASSESSEE I N REVENUES APPEAL IN ITA NO.427/MDS/94. REVENUES APPEAL WAS DISMISSED BY TH E ORDER OF THIS TRIBUNAL DATED 16- 8-2002. THE CROSS OBJECTIONS ARE NOT IN SUPPORT OF THE ORDER OF THE CIT(A), BUT, ON THE OTHER HAND, ASSAIL CERTAIN DISALLOWANCES MADE BY T HE AO, WHICH WERE CONFIRMED BY THE CIT(A). 2. GROUND NOS. 1 AND 2 OF THE CROSS OBJECTIONS ASSA ILS DISALLOWANCE OF ` .22,487/- INCURRED BY THE ASSESSEE ON TELEVISION SET AND CASS ETTE RECORDER, WHICH WAS CLAIMED BY IT AS NORMAL BUSINESS EXPENDITURE. LD. AO TREATED I T AS A CAPITAL OUTGO. ARGUMENT OF THE ASSESSEE BEFORE THE AO WAS THAT TV SET AND CASSETTE RECORDER WERE INSTALLED AT THE CO NO.76/MDS/94 2 WORKERS SHED AND HENCE IT WAS A STAFF WELFARE EXP ENDITURE. HOWEVER, THE AO WAS OF THE OPINION THAT THOUGH IT WAS INSTALLED IN WORKERS SHED, ASSESSEE CONTINUED TO BE THE OWNER OF THE ASSET. HE, THEREFORE, CONSIDERED THE S AME AS CAPITAL IN NATURE, BUT NEVERTHELESS, ALLOWED DEPRECIATION TO IT. THIS TREA TMENT WAS CONFIRMED BY THE CIT(A) ON ASSESSEES APPEAL. 3. NOW BEFORE US, THE LD. AR SUBMITS THAT THE CLAIM COULD NOT BE CONSIDERED AS CAPITAL EXPENDITURE SINCE IT WAS IN THE NATURE OF S TAFF WELFARE EXPENSES. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE ALLAHABAD HIG H COURT IN CIT VS. RENUSAGAR POWER CO. LTD. (298 ITR 94). ACCORDING TO HIM, THE TV SET AND CASSETTE, INSTALLED FOR THE WELFARE OF THE EMPLOYEES, WAS ALLOWABLE AS A DEDUCT ION IN VIEW OF THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE MENTIONED (SUPRA). 4. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. 5. WE HAVE PERUSED THE RECORDS AND HEARD THE RIVAL SUBMISSIONS. FACTS ARE NOT DISPUTED. THE PURCHASE WAS OF ONE TV SET AND CASSET TE RECORDER. THE SAID ITEMS WERE INSTALLED IN THE WORKERS SHED. THE NORMAL CONCLUS ION COULD ONLY BE THAT THESE ITEMS WERE USED BY THE WORKERS FOR THEIR ENTERTAINMENT AN D PLEASURE. LOOKING AFTER THE LEISURE ACTIVITIES AND KEEPING THE EMPLOYEES MENTAL LY AND PHYSICALLY FIT FOR THE WORK OF THE ENTERPRISE, IS A BUSINESSMANS NORMAL ACTIVITY. SUCH WELFARE MEASURES WILL IN LONG RUN HELP THE BUSINESS OF THE ASSESSEE. WE CANNOT SA Y THAT THESE WERE NOT RELATED TO STAFF WELFARE OR NOT RELATING TO STAFF WELFARE. IN THE CASE OF RENUSAGAR POWER CO. LTD. (SUPRA), HONBLE ALLAHABAD HIGH COURT HELD THAT EVE N THE CONSTRUCTION OF A TEMPLE WAS CO NO.76/MDS/94 3 FOR THE WELFARE OF THE EMPLOYEES AND ALLOWABLE AS D EDUCTION. IF THAT BE SO, THE CLAIM COULD NOT HAVE BEEN DISALLOWED. GROUND NOS. 1 AND 2 OF THE ASSESSEE ARE, THEREFORE, ALLOWED. 6. VIDE ITS GROUNDS NO.3 AND 4, GRIEVANCE OF THE AS SESSEE IS THAT ITS INVESTMENT ALLOWANCE CLAIM ON INTERNAL TELEPHONE SYSTEM WAS NO T ALLOWABLE. 7. FACTS APROPOS ARE THAT ASSESSEE HAD INSTALLED IN TERNAL TELEPHONE SYSTEM AT A COST OF ` .1,20,000/- IN THE EARLIER YEARS. INVESTMENT ALLOWA NCE OF ` .24,000/- WAS CLAIMED. THIS WAS DISALLOWED BY THE AO. 8. IN ITS APPEAL BEFORE THE CIT(A), RELIANCE WAS PL ACED ON THE DECISION OF THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS. MOHAN MEAKIN BREWERIES LTD. (122 ITR 203). HOWEVER, THE CIT(A) HAD, BASED ON THE DETAILS FURNISHED BY THE ASSESSEE, CAME TO A CONCLUSION THAT INTERNAL TELEPH ONE WAS CONNECTED TO THE VARIOUS SECTIONS OF OFFICE OF THE ASSESSEE, IN ADDITION TO RESIDENCE OF SOME OF ITS OFFICERS. ACCORDING TO HIM, EACH AND EVERY ITEM OF PLANT AND MACHINERY WAS NOT ELIGIBLE FOR INVESTMENT ALLOWANCE, EVEN THOUGH IT WAS USED IN TH E BUSINESS. LD. CIT(A) WAS OF THE OPINION THAT THERE HAD TO BE A CLOSE NEXUS BETWEEN THE MACHINERY AND PLANT ON WHICH INVESTMENT ALLOWANCE WAS CLAIMED, WITH THE BUSINESS OF THE ASSESSEE. HE, THEREFORE, CAME TO A CONCLUSION THAT SUCH CLAIM WAS RIGHTLY DI SALLOWED. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MACHINERY MFG. CORPORATION LTD. (198 ITR 559). CO NO.76/MDS/94 4 9. NOW BEFORE US, LD. AR ASSAILING THE ORDER OF THE CIT(A), PLACED CONSIDERABLE RELIANCE ON THE DECISION SOF THE HONBLE HIMACHAL P RADESH HIGH COURT IN THE CASE OF MOHAN MEAKIN BREWERIES LTD. (SUPRA). LD. AR ALSO SU BMITTED THAT INTERNAL PHONE SYSTEM WAS A SCIENTIFIC APPARATUS USED IN THE BUSINESS AND WAS ELIGIBLE FOR CLAIM OF INVESTMENT ALLOWANCE. 10. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE HEAD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. NO DOUBT, IN THE CASE OF MOHAN MEAKIN BREWERIES LTD. (SUPRA), HONBL E HIMACHAL PRADESH HIGH COURT HELD THAT INTERNAL TELEPHONE SYSTEM WAS A SCIENTIFI C APPARATUS FALLING WITHIN THE DEFINITION OF PLANT U/S 43. BUT, NEVERTHELESS, THERE THE TELEPHONE SYSTEM WAS USED FOR THE EFFICIENT ORGANIZATION OF THE MANUFACTURING PROCESS AND NOT FOR THE PURPOSE OF OFFICE. HERE, ON THE OTHER HAND, THERE IS AN UNREBU TTED FINDING OF THE CIT(A), THAT INTERNAL TELEPHONE SYSTEM WAS CONNECTED TO THE SECT IONS OF OFFICE OF THE ASSESSEE AND THE RESIDENCES OF ITS OFFICERS. SECOND PROVISO TO S UB-SEC. (1) OF SEC. 32A CLEARLY PLACES AN EMBARGO ON A CLAIM OF INVESTMENT ALLOWANCE FOR A NY MACHINERY OR PLANT INSTALLED IN THE OFFICE PREMISES OR RESIDENTIAL ACCOMMODATION AN D ALSO ANY OFFICE APPLIANCE OR ROAD TRANSPORT VEHICLES. THIS BEING THE POSITION, WE ARE OF THE OPINION THAT THE INTERNAL TELEPHONE SYSTEM HERE WAS NOT ELIGIBLE FOR CLAIM OF INVESTMENT ALLOWANCE. IT WAS RIGHTLY DENIED TO THE ASSESSEE. NO INTERFERENCE IS CALLED F OR. GROUND NOS. 3 AND 4 OF THE ASSESSEE STAND DISMISSED. CO NO.76/MDS/94 5 12. VIDE ITS GROUND NOS.5 AND 6, GRIEVANCE OF THE A SSESSEE IS THAT CLAIM OF INVESTMENT ALLOWANCE WAS NOT ALLOWED ON A COMPUTER INSTALLED BY IT. ACCORDING TO THE ASSESSEE, SAID COMPUTER WAS UTILIZED IN THE MANUFAC TURING PROCESS, WHICH INCLUDED PRODUCTION SCHEDULING AND INVENTORY CONTROL AND HEN CE IT WAS ELIGIBLE FOR INVESTMENT ALLOWANCE. ASSESSEE ALSO PLEADS THAT THE COMPUTER W AS INSTALLED IN A SEPARATE FULLY AIR- CONDITIONED ROOM AND JUST BECAUSE THIS ROOM WAS P ART OF THE BUILDING IN WHICH THE OFFICE WAS SITUATED, THE CLAIM OUGHT NOT HAVE BEEN DISALLOWED. 13. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD CLAIM ED INVESTMENT ALLOWANCE ON A COMPUTER OF VALUE ` .9,03,402/-. AO WAS OF THE OPINION THAT COMPUTER WA S INSTALLED IN THE OFFICE ROOM AND WAS USED ONLY FOR ACCOUNTING PU RPOSE. HENCE, CONSIDERING IT TO BE AN OFFICE EQUIPMENT, HE DENIED THE CLAIM OF INVESTM ENT ALLOWANCE. 14. BEFORE THE CIT(A), CLAIM OF THE ASSESSEE WAS TH AT COMPUTER WAS NOT AN OFFICE EQUIPMENT, IN VIEW OF THE DECISION OF THE HONBLE M UMBAI HIGH COURT IN THE CASE OF CIT VS. I.B.M WORLD TRADE CORPORATION (130 ITR 739). HO WEVER, LD. CIT(A) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. ACCORDING TO HIM, THE CO MPUTER BEING INSTALLED IN THE OFFICE ROOM AND USED ONLY FOR ACCOUNTING PURPOSES, FELL WI THIN THE DISABLING PROVISO TO SUB- SEC.(1) OF SEC.32A OF THE ACT. 15. NOW BEFORE US, LD. AR STRONGLY ASSAILED THE ORD ERS OF THE AUTHORITIES BELOW. ACCORDING TO HIM, THE AUTHORITIES IGNORED OTHER FUN CTIONS EXECUTED BY THE COMPUTER AND CONSIDERED IT TO BE A MERE OFFICE APPLIANCE. RELIAN CE WAS AGAIN PLACED ON THE MUMBAI HIGH COURTS DECISION IN I.B.M.WORLD TRADE CORPN. ( SUPRA). CO NO.76/MDS/94 6 16. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS. NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO OR THE CIT (A) TO SHOW THAT COMPUTER IN QUESTION WAS USED ONLY FOR ACCOUNTING PURPOSE. ASSESSEES CLAIM IS THAT THE SAID COMPUTER WAS USED IN MANUFACTURING ACTIVITIES ALSO. COST OF THE COMPU TER IS VERY RELEVANT HERE. ADMITTEDLY, IT CAME TO ` .9,03,402/-. IT WOULD BE FOOL HARDY TO PRESUME THAT FOR SIMPLE ACCOUNTING PURPOSE, ASSESSEE WOULD HAVE ACQUIRED A COMPUTER OF VALUE EXCEEDING ` .9 LAKHS. SO, PREPONDERANCE OF PROBABILITY IS THAT THE SAID MACHI NE WAS ALSO USED FOR THE ACTIVITIES RELATED TO THE MANUFACTURING PROCESS OF THE ASSESSE E. WE ARE OF THE OPINION THAT IT COULD NOT BE CLASSIFIED AS A SIMPLE OFFICE EQUIPMEN T, AS HELD BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF I.B.M. WORLD TRADE CORPO RATION (SUPRA). INVESTMENT ALLOWANCE SHOULD NOT HAVE BEEN DENIED TO THE ASSESS EE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD AND DIRECT THAT INVESTMENT ALLOWANCE BE GRANTED ON THE COMPUTER. GROUNDS 5 AND 6 OF THE ASS ESSEE STAND ALLOWED. 18. IN THE RESULT, CROSS-OBJECTION FILED BY THE ASS ESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-8-2010 . . SD/- ( HARI OM MARATHA) SD/- (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 31 ST AUGUST, 2010 NBR CC: THE ASSESSEE 2)THE ASSESSING OFFICER 3 )THE CIT(A) 4) THE CIT, 5)THE D.R 6)GUARD FILE.