Commissioner of Income Tax vs Madras Rubber Factory Ltd.

A. Subbulakshmy, J.—At the instance of the Revenue, the following questions have been referred to us :

"1. Whether, the Appellate Tribunal was justified in holding that the subsidy received by the assessee from the Government should not be reduced from the cost of the assets for the purpose of grant of depreciation and relief u/s 80J ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal''s view that the value of building under construction and the machinery under erection should be taken as capital employed for grant of relief u/s 80J is sustainable in law ?

Whether the Appellate Tribunal was justified in holding that the assessee is entitled to weighted deduction u/s 35B in respect of the items of expenditure held to be eligible by the Commissioner of Income Tax (Appeals) ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the car allowance, house rent allowance and reimbursement of the medical expenses should be outside the purview of Section 40A(5) especially when they would form part of salary if not perquisite, for disallowance u/s 40A(5) of the Act ?"

The assessee is a public limited company carrying on business in the manufacture and sale of automobile tyres and tubes. The assessee claims weighted deduction in respect of nine items of expenditure. The assessment officer negatived the claim of the assessee. On appeal, the Commissioner of Income Tax allowed weighted deduction. The Tribunal upheld the order of the Commissioner of Income Tax in respect of weighted deduction, subsidy, relief u/s 80J, disallowance u/s 40A(5). The Supreme Court, in the case of Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., has held that the amount of subsidy is not to be deducted from the "actual cost" of assets and this question has been answered against the Revenue. Following the decision of the Supreme Court, we answer the question in favour of the assessee and against the Revenue.

Regarding question No. 2, the Supreme Court in the case of Commissioner of Income Tax v. Alcock Ashdown and Co. Ltd., (1997) 224 ITR 353 (SC) has held that the value of the building under construction and the machinery and plant under erection should be taken into account in determining the capital for the grant of relief u/s 80J and this question has been answered in favour of the assessee and against the Revenue. Following the decision of the Supreme Court, we answer the question in favour of the assessee and against the Revenue.

With regard to question No. 4, the Supreme Court, in the case of Commissioner of Income Tax, Bombay, etc. Vs. M/s. Mafatlal Gangabhai and Co. (P) Ltd., has held that payments made in cash are not covered by Section 40A(5) of the Income Tax Act. The Tribunal was right in holding that the reimbursement of medical expenses should be outside the purview of Section 40A(5) especially when they would form part of salary, not perquisite for disallowance u/s 40A(5) of the Act. We answer this question in favour of the Revenue (sic).

With regard to question No. 3 for weighted deduction u/s 558, with regard to items (e) and (f) in the assessee''s own case in Commissioner of Income Tax, Tamil Nadu-II Vs. Madras Rubber Factory Limited: (No. 2), it is held that royalty paid is not includible in the expenditure and this question has been answered against the assessee. Following the above decision we hold that the royalty paid is not includible in the expenditure and this aspect has been answered against the assessee.

With regard to items (a) to (d) we remand this matter back to the Tribunal to recheck these items of expenditure and then pass appropriate orders.