COMMISSIONER OF INCOME TAX Vs. KAR VALVES LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following questions of law for the decision of this court :

(2.) THE respondent-assessee is a limited company formerly known as Cochin State Power and Light Corporation Ltd. THEy were engaged in the business of distribution of electricity in Ernakulam town. After takeover of the undertaking on December 2, 1970, the assessee-company started a plant for the manufacture of automobile engine valves. THE income assessable for the assessment year 1974-75 was only interest and dividend and the income returned was after deducting the overheads, depreciation, etc. THE assessee charged 20 per cent. of the total overhead expenses to the profit and loss account and the balance 80 per cent. capitalised to the new project. For the assessment year 1974-75, the Income-tax Officer rejected the claim of the assessee in respect of 20 per cent. expenditure. On second appeal, the Income-tax Appellate Tribunal held that an amount of Rs. 20,000 could be treated as referable to the business as well as the interest and dividend income. THE Income-tax Officer was directed to allow a deduction of 20 per cent. the assessee claimed the balance amount of Rs. 25,215 as capital expenditure which was referable to the value of assets then on hand. THE Income-tax Officer did not accept the claim. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim and it was held that the balance amount of Rs. 25,215 pertaining to the new valve project at Bangalore was capital expenditure and could be capitalised. THE claim of the assessee was, therefore, allowed. On further appeal, the Tribunal confirmed the order of the Commissioner (Appeals). THEse facts cover questions Nos. 1 and 2 proposed before the Tribunal by the Commissioner of Income-tax. THE said aspect is covered by question No. 1 referred to this court.

(3.) HEARD standing counsel for the Revenue, Sri P.K.R. Menon, and Sri C.M. Devan for Menon and Pai for the respondent.