Commissioner Of Income-Tax v. Cheran Transport Private Ltd.

Ramanujam, J.:— The Revenue in this application filed under section 256(2) of the Income-tax Act, 1961, seeks a direction from this court to the Income-tax Appellate Tribunal to refer the following two questions for the opinion of this court:

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 1,49,379 being the interest payable on the compensation due to the foreign owners of the transport undertakings which had been nationalised and given to the assessee-corporation should be allowed as a revenue expenditure?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the buildings located in the bus terminus and which were used only for parking vehicles and to carry out repairing operations, should be treated as ‘factory buildings’ and accordingly depreciation at 10% should be allowed thereon?”

2. The assessee in this case is a Government-owned transport corporation. For the assessment year 1977–78, the assessee claimed, inter alia, a deduction of a sum of Rs. 1,49,379 being the interest payable on the compensation due to the foreign owners of the transport undertakings in the Nilgiri District which were nationalised and vested in the assessee-corporation. The assessee also claimed depreciation at the rate of 10% in respect of certain buildings located in the various bus termini on the ground that they were factory buildings. The Income-tax Officer disallowed both these claims put forward by the assessee on the ground that the interest paid is capital in nature and the buildings in respect of which depreciation is claimed at 10% are not factory buildings. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) questioning the disallowance of interest as a deduction and the denial of depreciation at 10% in respect of the buildings. The Commissioner of Income-tax (Appeals), however, upheld the assessee's claim for deduction of interest on the view that the assessee's liability to pay interest arose under the Nationalisation Ordinance. He also held that the assessee was entitled to depreciation at 10%, in respect of the buildings as in his view the registration of buildings as factory buildings under the Factories Act would be sufficient to prove their use as workshops although they were also used for parking the buses. In this view, the assessee's appeal was allowed. The Revenue took the matter in appeal to the Income-tax Appellate Tribunal.

3. The Tribunal, however, concurred with the view of the Commissioner of Income-tax (Appeals) that the interest payable on the compensation was an allowable revenue expenditure holding that even though the compensation may be of a capital nature, the interest that was paid after the inception of the business must be considered as a revenue expenditure. The Tribunal also agreed with the view of the appellate authority that the buildings in question having been registered as factory buildings and having been used for repair of the buses, the buildings have to be treated as factory buildings. The said view of the Tribunal is sought to be challenged by the Revenue by seeking a reference to this court. However, on the findings rendered by the Tribunal in this case on both the issues, there is no justification for referring the two questions set out above.

4. On the question as to whether the interest paid on the compensation as per the provisions of the Nationalisation Ordinance could be allowed as a deduction, the Tribunal has taken the view that though the compensation paid for the buses which have been acquired under the provisions of the Nationalisation Ordinance may be of a capital nature, the interest paid on the compensation after the assessee company had undertaken the business of road transport could be taken as a revenue expenditure. Apart from the reasoning given by the Tribunal that the interest paid amounts to a business or revenue expenditure, the matter may be looked at from another point of view. If the compensation has been paid then and there immediately after the acquisition of the buses, the assessee company would find it difficult to run its business. It is only by paying the compensation in instalments and retaining the money which they have drawn towards payment of the compensation, the company assured itself of sufficient financial stability in running its business of road transport. Therefore, we are not in a position to disagree with the view taken by the Tribunal on this aspect of the matter.

5. Coming to the question as to whether the buildings situated at the bus termini which are used both for repairing of the buses as well as for parking the buses could be treated as factory buildings for which 10% depreciation could be allowed, the Tribunal specifically finds that the buildings, though located in the various bus termini, are used not only for parking the vehicles but also for carrying out minor repairs. Once it is found that the buildings are used for carrying out minor repairs to the vehicles, the buildings have to be taken as workshops or factories. Admittedly, in this case, the buildings have been registered as factories under the Factories Act. “Factory”, according to the Concise Oxford Dictionary, means “manufactory” as well as “workshop”. We are not in a position to agree with the learned counsel for the Revenue that merely because minor repairs alone are carried out in the buildings, they cannot be said to be factories or workshops. Even places where minor repairs to the vehicles are carried out could very well be called workshops. As a matter of fact, the Tribunal also finds that because of the user of the buildings as places for effecting repairs and the repairs being conducted regularly in an extensive manner, they should be taken to be workshops although they were also used for parking buses. We are in entire agreement with the view taken by the Tribunal on the facts and circumstances of this case.

6. In this view of the matter, we do not see any justification for directing the Tribunal to refer the questions referred to above. The petition is accordingly dismissed. No costs.