Commissioner of Income Tax vs Peico Electronics and Electricals Ltd.

Ajit K. Sengupta, J.—In this reference made at the instance of the revenue, the following questions have been referred by the Tribunal for the opinion of this Court u/s 256(2) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee was not maintaining any agency office outside India, the Tribunal was correct in law in holding that the tax relief u/s 35B of the income tax Act, 1961 would be available to the assessee in respect of the entertainment expenses incurred in Nepal?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that since the canteen was an integral part of the assessee''s factory necessarily established according to the Factory Act, the canteen equipments were for the assessee''s business on which it was entitled to investment allowance and thereby referring back the matter to the Assessing Officer for reconsideration?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that general tools and spares were necessary for carrying out the assessee''s business and, therefore, these should necessarily be termed as ''plant'' for which the assessee would be entitled to investment allowance?

The facts found by the Tribunal are as under:

The assessee-company claimed weighted deduction u/s 35B of the Act, in respect of the assessment year 1980-81 on entertainment expenditure incurred in its Nepal office. The assessing authorities had refused to allow weighted deduction as claimed by the assessee- company only on the ground that the assessee did not incur this expenditure on maintenance of the agency outside India.

The Tribunal, however, recorded a finding of fact that the assessee was having office in Nepal and such entertainment expenditure was incurred in its Nepal office. Question No. 1 appears to be based on presumption that the assessee was not maintaining any agency office outside India. This is contrary to the finding of fact recorded by the Tribunal. There is no challenge to the finding recorded by the Tribunal that the assessee was having office in Nepal and the entertainment expenses were incurred in Nepal office. We, therefore, reframe question No. 1 as under:

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that weighted deduction u/s 35B of the income tax Act, 1961 would be available to the assessee in respect of entertainment expenses incurred in its Nepal office?

In view of the finding of facts recorded by the Tribunal as aforesaid, we answer question No. 1 as reframed in the affirmative and in favour of the assessee.

Both questions 2 and 3 relate to the assessee''s claim for investment allowance in respect of the canteen equipments of the value of Rs. 8,475 and general steels and spares of the value of Rs. 42,212.

As regards the canteen equipments, the Tribunal has remanded the matter to the ITO for reconsideration. This issue is, however, covered against the assessee-company by the decisions of this Court in the assessee''s own case in Peico Electronics and Electricals Ltd. Vs. Commissioner of Income Tax, Following the said decision it must be held that the assessee-company is not entitled to investment allowance on the canteen equipments.

We, therefore, answer the second question in the negative and in favour of the revenue.

As regards general steels and spares, the Tribunal held that these were necessary for carrying out the business of the assessee and, therefore, these are plants and the assessee-company is entitled to investment allowance thereon. This Court had occasion to consider the issue of investment allowance in Commissioner of Income Tax Vs. Machinery Manufacturing Corporation Ltd., It was held in the said case that each and every item of machinery and plant is not eligible for investment allowance even though it may be used in the business. The machinery or plant must have close nexus with the business of manufacture, production or any article or thing, not being any article or thing specified in Schedule XI to the Act. Therefore, this Court held that the assessee was not entitled to claim investment allowance on fire extinguisher or time office equipments which are used in business, but are not inextricably connected with the production of any article or thing.

In this view of the matter, we decline to answer question No. 3 referred by the Tribunal in this case. We, therefore, remand the matter to the Tribunal, who will decide this issue in the light of the principles laid down by this Court in CIT v. Machinery Mfg. Corpn. Ltd.''s case (supra).

Chowdhury, J.

I agree.