INCOME TAX OFFICER v. ENGINEERING PRODUCTION LTD
[Citation -1987-LL-0404]

Citation 1987-LL-0404
Appellant Name INCOME TAX OFFICER
Respondent Name ENGINEERING PRODUCTION LTD.
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 04/04/1987
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags capital expenditure • capital asset • bonus act
Bot Summary: The first point in appeal is regarding the allowance of Rs. 28,138 under the head 'building repairs' and Rs. 7,186 under the head 'miscellaneous repairs' disallowed by the ITO for reasons given in para 2 of his order dt. The ITO's contention is that the assessee is a tenant of the parent-company M/s Patel Engineering Co. Ltd. There is no agreement between the two companies regarding the person who was to incur the repairs in the tenanted premises. According to the ITO, under s. 30(i) only such repair expenses are allowable as are agreed to be undertaken by the assessee as a tenant. The CIT(A) held that the agreement regarding carrying of repairs is not very relevant for the purpose of determining allowance under s. 30(i) which would not be applicable as there is no agreement regarding repairs. The contention of the departmental representative is that when there is no agreement to undertake the cost of repairs the claim cannot fall under s. 37. Similar items of expenditure have been incurred, in the past and allowed as below : DETAILS OF BUILDING REPAIRS AND MISCELLANEOUS REPAIRS Assessment Building Miscellaneous. The provisions of s. 30(i) are clearly not attracted as it is admitted that there is no agreement to bear the cost of repairs.


V.S. GAITONDE, A.M. This appeal is filed by Revenue against order of CIT(A) VIII, Bombay, dt. 26th Nov., 1983 for asst. yr. 1980-81. assessee is limited company (subsidiary of Patel Engineering Co. Ltd.) 2. first point in appeal is regarding allowance of Rs. 28,138 under head 'building repairs' and Rs. 7,186 under head 'miscellaneous repairs' disallowed by ITO for reasons given in para 2 of his order dt. nil. ITO's contention is that assessee is tenant of parent-company M/s Patel Engineering Co. Ltd. There is no agreement between two companies regarding person who was to incur repairs in tenanted premises. These expenses were initially incurred by M/s Patel Engineering Co. Ltd. and were later on reimbursed by assessee. According to ITO, under s. 30 (a)(i) only such repair expenses are allowable as are agreed to be undertaken by assessee as tenant. As there is no evidence that assessee tenant had undertaken to bear cost of repairs, conditions are not fulfilled. ITO rejected claim under s. 37 also. ITO seems to have laid strees on fact that parent company is getting 1/6th for repairs in computation of its own income. There would thus be double rebate not warranted by law. ITO, however, fairly conceded that expenditure is of revenue nature. 3 . Aggrieved by decision of ITO assessee filed appeal before CIT(A) who allowed claim for reasons given in para 2 of his order. CIT(A) held that agreement regarding carrying of repairs is not very relevant for purpose of determining allowance under s. 30 (a)(i) which would not be applicable as there is no agreement regarding repairs. Sec. 37, however, would be applicable if claim does not fall under s. 30 (a)(i). CIT(A) referred to CIT vs. Ramakrishna steel Rolling Mills (1974) 95 ITR 97 (Del). He also examined details available on record and found that for fittings and fixtures amounting to Rs. 2,087 all expenses included in property repairs and miscellaneous repairs are in nature of current repairs. Accordingly, CIT(A) allowed relief on revenue items and directed grant of depreciation on capital expenditure. Against this, Revenue has now come in appeal. 4. contention of departmental representative is that when there is no agreement to undertake cost of repairs claim cannot fall under s. 37. claim is clearly disallowable under s. 30 (a)(i). Lastly, assessee has not given details of expenditure with precision and clarity required for purpose. Accordingly, departmental representative sought restoration of order of ITO. 5. In reply, Shri Vatsaraj relied on order of CIT(A). According to him it is not necessary to have any agreement for meeting cost of repairs. This is really in nature of unwritten agreement between parent company and subsidiary company. assessee company did require premises in proper and safe condition. Although, there is close connection, it is not always possible for tenant to insist on getting all repairs done by landlord. As to nature of expenditure, there is no dispute at all. In fact, similar items of expenditure have been incurred, in past and allowed as below : DETAILS OF BUILDING REPAIRS AND MISCELLANEOUS REPAIRS Assessment Building Miscellaneous . year repair charges repair charges allowed 1976-77 1,829.50 3,969.62 by ITO 1977-78 6,503.44 4,040.06 -do- 1978-79 2,175.25 2,882.00 -do- 1979-80 1,244.00 816.60 -do- 1980-81 38,658.62 27,934.15 -do- Disallowed 31,034 13,203 44,237 by ITO Allowed by 28,138.00 7,186 35,234 CIT (A) mere fact that expenses have mounted to higher figure this year cannot be ground for altering character of expenditure or for holding that any capital asset has come into existence. There is also no reason to hold that expenditure is not allowable because it is not laid out for purpose of business or because there is no contractual agreement for taking out such repairs. 6. On examination of facts, we hold that CIT(A) was justified in his conclusion. assessee has proof regarding actual incurring all expenditure with clarity required. expenditure was initially incurred by M/s Patel Engineering Co. Ltd. We agree with Shri Vatsaraj that in business practice, it is not always practicable to go by letter of law by landlord- tenancy agreement. Some sort of give and take is necessary even when landlord and owner are parent and subsidiary company. provisions of s. 30 (a)(i) are clearly not attracted as it is admitted that there is no agreement to bear cost of repairs. Nevertheless, provisions of s. 37 are clearly attracted in this case. There is no capital expenditure involved. incurring of expenditure was solely necessitated by business needs. In view of this factual and legal position, we see no merit in this ground of appeal which accordingly stands rejected. 7 . second point in appeal is regarding allowance of productivity incentive bonus. ITO considered this as bonus falling under Bonus Act and disallowed same. In appeal, CIT(A) noticed that bonus was paid in terms of agreement between assessee and employees' union. Actually, as seen from ITO's order assessee has given 16 per cent bonus though in terms of Bonus Act it could have restricted same to 8.33 per cent. Now even CBDT instructions direct allowance of bonus if overall payment does not exceed ceiling of 20 per cent. Besides, at time of hearing, we were informed that productivity bonus is really in nature of wages earned by employees for bringing more than normal output. These payments are made on prescribed scale on above additional output. Taking all these facts into consideration, we hold after hearing parties that CIT(A) is right in his conclusion. This ground of appeal, therefore, fails. 8. In result, appeal is dismissed. *** INCOME TAX OFFICER v. ENGINEERING PRODUCTION LTD.
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