STERANCO HEALTH CARE P. LTD,MUMBAI vs. ITO 8(3)(2), MUMBAI

The common issue urged in all these appeals relate to the disallowance of claim of depreciation on the surgical equipments installed by the assessee free of cost at the client’s places.

The assessee is engaged in the business of trading in health care, medical and surgical products. It was seen that the assessee had claimed depreciation on surgical equipments installed in various hospital premises. It was noticed that the assessee did not offer any income out of the surgical equipments. It was submitted that the assessee has given the as and when required. It was submitted that the use of equipments by the hospitals should be considered as the use by the assessee. However both the AO as well as the Ld CIT(A) took the view that the assessee has not used the surgical equipments for its own business and further held that the usage by the hospitals cannot be construed as usage by the assessee. Accordingly, both the tax authorities disallowed the depreciation claimed by the assessee.

The Ld A.R vehemently argued that the assessee’s main aim is to sell spares required for the surgical equipments and hence it has installed the equipments at free of cost, as a part of its business strategy. He further submitted that the assessee is able to sell the spares only because the equipments are being used by the hospitals. Accordingly, the Ld A.R submitted that the surgical equipments should be considered as having been used by the assessee, since it is being used in furtherance of business interests. In support of his contentions, the ld A.R placed reliance on hosts of case laws.

On the contrary, the Ld D.R submitted that the assessee’s spare parts sales figure has come down year after year and further the assessee has failed to demonstrate as to how the surgical equipments are used for the purpose of its business.

In the rejoinder, the Ld A.R submitted that the assessee’s claim of depreciation on surgical equipments have been allowed by the AO in the years earlier to the assessment years under consideration. Alternatively, the ld A.R submitted that the surgical equipments, having entered the disallowance of depreciation does not arise.

We have heard the parties and perused the record. There is no dispute with regard to the fact that the assessee remains the owner of surgical equipments that have been installed at various hospital premises. The only dispute is whether the assessee can be considered to have used them for the purposes of its business or not. The tax authorities have taken the view that the assets should have been used by the assessee exclusively for the purpose of its business. In the case of Liquidators of pursa Ltd Vs. CIT (1954)(25 ITR 265), the Hon’ble Supreme Court has held that the words used for the purposes of the business” obviously mean used for the purpose of enabling the owner to carry on the business and earn profits in the business. In the instant case, the submission of the assessee is that the object of installing the surgical equipments in the hospital premises is to enable to carry on the business of trading in spare parts. Hence, the installation of surgical equipments has actually enabled the assessee to carry on its spare parts business and accordingly, in our view, there is merit in the contentions of the assessee that the said installation of surgical equipments amount to user of assets for the purpose of business of the assessee. Further, it was also stated that the depreciation claimed in the earlier years have been allowed by the assessing officer. Accordingly, we are of the view that the tax authorities are not justified in rejecting the claim of depreciation. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue in all the years under consideration and direct the AO to allow the depreciation on surgical equipments.

The next issue urged in the appeal of the assessee for the assessment year 2006-07 relates to disallowance of vehicle expenses of Rs.1 lakh. The assessee claimed vehicle expenses of Rs.15.84 lakhs in respect of two vehicles. The AO noticed that the assessee was not using one vehicle for selling company’s product and further personal expenses of directors are debited in the company’s account. Accordingly, he disallowed a sum of Rs.1 lakh out of vehicle expenses. The ld. CIT(A) confirmed the same.

We have heard the parties on this issue. We notice that the ld. CIT(A) has pointed out that the assessee does not maintain log book for the use of cars in order to show that the vehicles were used only for official purposes. Accordingly, we are of the view that the ld. CIT(A) was justified in confirmation the disallowance of Rs.1 lakh out of vehicle expenses.

The next issue urged in assessment year 2006-07 relates to disallowance made out of telephones expenses. The assessee claimed telephone expenses of Rs.6.35 lakhs and the AO disallowed Rs.2 lakhs out of the same. The ld. CIT(A) however restricted the same to Rs.25,000/-.

At the time of hearing, the ld. Counsel submitted that the assessee has paid fringe benefit tax on telephone expenses and hence the disallowance confirmed by the ld. CIT(A) was not justified.

We heard the ld. DR who strongly supported the order of ld. CIT(A). Having regard to the quantum of telephone expenses, we are of the view that the disallowance of Rs.25000/-confirmed by the ld. CIT(A) is reasonable and accordingly, we uphold his order on this issue.

With regard to the contention of the assessee about payment of fringe benefit tax, we are of the view that fringe benefit tax is required to be paid on the expenditure ultimately allowed and hence the payment of fringe benefit tax will not automatically validate the deductibility of expenditure.

The next issue urged in assessment year 2006-07 relates to disallwane of Rs.1 lakh out of Coolie Expenses. The assessee had claimed travelling and coolly charges of Rs.7,92,000/-. The AO disallowed sum of Rs.5 lakhs out of the same and the ld. CIT(A) restricted the disallowance to Rs.1 lakh.

We notice that the ld. CIT(A) has given finding that the coolly charges claimed by the assessee are supported by self made vouchers and hence they are not susceptible for cross verification. Accordingly, we are of the view that the ld. CIT(A) was justified in confirming the disallowance to the extent of Rs.1 lakh.

In the result, the appeal filed by the assessee for AY 2006-07 is partly allowed and the appeals for remaining years are allowed.

DR, ITAT, Mumbai concerned गधर्ा पधईर / Guard file. 6. आदेशधनुसधय/ BY ORDER,सहधमक ऩंजीकधय (Asstt.