HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Raj kumar Singh & Co.
R.K. AGRAWAL AND BHARATI SAPRU, JJ.
IT REFERENCE NO. 80 OF 1995
May 15, 2007
I Section
36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital -
Deduction on - Assessment year 1990-1991 - Assessee-firm had taken interest
free advance from ‘J’ - Later, assessee borrowed money from market on interest
to return advance of ‘J’ - Assessing Officer disallowed interest incurred on
said borrowing - Whether since assessee as prudent businessmen decided to
borrow money from market instead of lequidating its assets, interest paid was
allowable as a business expenditure - Held, yes
II Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of books of
account - Assessment year 1990-1991 - Whether where payment made by hirer of
machineries, stood confirmed from account books maintained by hirer as also
that of assessee and there was no discrepancy in recording any major payment in
books of account provision of section 145(2) was not attracted and income had
to be assessed on basis of actual receipt as disclosed by assessee - Held, yes
III Section 37(1) of the Income-tax Act, 1961 - Business
expenditure - Allowability of - Assessment year 1990-1991 - Assessee had
certain dumpers and tippers which it gave on hire to contractors on daily basis
- Assessee had incurred certain expenditure towards repair of - Said amount was
disallowed hired vehicles - Under terms of agreement entered into between
assessee and hirer, responsibility of hirer was only to effect minor repairs
and vehicles had to be maintained by assessee in case of major breakdown and
failure - Whether expenditure in question was allowable - Held yes
IV Section
32, read with section 37 of the Income-tax Act, 1961 - Depreciation - Allowance
/ Rate of - Assessment year 1990-1991 - Whether where assessee was required to
provide and certain tippers and recovery van as stand by so that in event of
any major breakdown or otherwise if vehicles on hire were not capable of being
used, extra tipper provided as standby could have been used, depreciation and
repairs expenses as there vehicles were allowable - Held, yes
The assessee-firm had taken interest free advance from ‘J’ during the assessment year 1986-87. Later, the assessee borrowed money from the market on interest to return the advance of ‘J’. The interest incurred on said borrowing was disallowed by the Assessing Officer. On appeal Commissioner (Appeals) upheld the disallowance. The Tribunal, however, allowed the claim of the assessee.
On appeal:
From the order of the Tribunal, it was found that the respondent assessee had taken interest - free advance of Rs. 5.7 crores from the ‘J’ firm during the relevant assessment year. The said amount was required to be refunded / paid back for which there were two options available to the assessee, either to liquidate the assets or to borrow money from the market on payment of interest. The assessee, as a prudent businessman, adopted the second option by borrowing the money from the market on payment of interest. Thus, if as a prudent businessman, the assessee had decided to borrow money from the market, the interest paid was clearly allowable as a business expenditure. [Para 7]
The assessee had certain dumpers and tipper which it gave on hire to the contractor on daily basis. The total receipt disclosed were at Rs. 37,30,000 for the actual number of working days used. The Assessing Officer applying the provisions of section 145(2) estimated the receipts at Rs.92,98,000 on the basis of 360 working days as per agreement in which it was mentioned that the hire charges would be received from the date of actual use. On appeal, the Commissioner (Appeals) gave some relief and issued certain directions to reduce the number of working days. Further, the Tribunal held that the Assessing Officer should accept the receipts towards hire charges as the correct one.
The Tribunal had recorded a clear finding of fact that the payment made by the hirer of the machineries, stood confirmed from the account books maintained by the hirer as also that of the assessee and no discrepancy of any major payment or payment not being recorded in the books of account, had been pointed out. If that was the situation, the provision of section 145(2) was not attracted and the income had to be assessed on the basis of the actual receipt as disclosed by the assessee. [Para 10]
The assessee had certain dumpers and tipper which it gave on hire to the contractors on daily basis. It had incurred an expenditure of Rs. 28,11,678 towards repair and purchase of spares on its machinery. The said amount was disallowed on the ground that the receipts were too low and secondly the amount of repairs shown was too high in comparison to earlier year. The said disallowance was confirmed by the Commissioner (Appeals). The Tribunal directed the Assessing officer to allow the entire expenditure meted out by the assessee on repairs and machinery.
On appeal:
The terms of the agreement entered into between the assessee and the hirer, the responsibility of the hirer was only to effect minor repairs. It was not in dispute that the vehicles, namely, tippers and other vehicles, which were given on hire, had to be maintained by the assessee in case of major breakdown and failure. The expenditure incurred in respect of carrying out major repairs, was clearly to be met by the assessee and it was an allowable deduction. [Para 11]
The assessee had certain dumpers and tipper which it gave on hire to the contractors on daily basis. The assessee claimed depreciation and repairs expenses on 4 tippers and the recovery van. The Assessing Officer disallowed assessee’s claim on ground that they were not used during the year for the purposes of business Tribunal, had allowed the depreciation and repair expenses of these tippers and delivery van on the ground that they were used by the hirer company constructively as they were kept in readiness for being used by the hirer at the site in case of any breakdown of the other dumpers and tippers or due to some emergency.
On appeal:
Under the agreement, the assessee was required to prove tippers and one tipper recovery van as standby so that in the event of any major breakdown or otherwise if the vehicles on hire were not capable of being used, extra tipper provided as standby could have been used. The depreciation and repairs was clearly admissible on such vehicles which were provided as stand by.