COMMISSIONER OF INCOME TAX vs. M/S. RUBAMIN PRIVATE LTD.

ITR/55/1999HC GujaratGJHC24025213199904 July 2008Author: HONOURABLE MR. JUSTICE JAYANT PATEL,HONOURABLE MR. JUSTICE AKIL KURESHI9 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. Rubamin Private Ltd., is a company. For Assessment Year 1989-90, the Assessing Officer (AO) made additions of Rs. 61,602/- and Rs. 9,58,068/-. These additions were due to the AO's view that the company should provide depreciation only according to the Companies Act rates and could not switch its depreciation method from Straight Line Method (SLM) to Written Down Value (WDV) method. The Commissioner of Income Tax (Appeals) deleted these additions, holding that for Section 115J of the Income Tax Act, 1961, only specified adjustments could be made to book profits, and depreciation was not one of them. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order. The Revenue then filed a reference to the High Court.

What did the High Court hold?

The High Court held that the issue was no longer res integra, referring to the Apex Court's decision in Apollo Tyres Ltd. v. Commissioner of Income-Tax. The Apex Court had held that an Assessing Officer, while computing book profits under Section 115J, has limited power to examine if accounts are properly maintained according to the Companies Act and can only make increases and reductions as provided in the explanation to Section 115J. The AO does not have the jurisdiction to go beyond the net profit shown in the Profit and Loss Account except to the limited extent provided in the explanation. The Court noted that the CIT(A) had found that the AO had reworked the profit for Section 115J purposes by adding depreciation due to the change in method, and that the method followed by the company was in accordance with the guidelines of the Institute of Chartered Accountants. The AO was not permitted to make adjustments not explicitly covered by the explanation. Therefore, the High Court found that the CIT(A) and the Tribunal committed no error in upholding the assessee's stand regarding depreciation, in view of the ratio of the Apex Court in Apollo Tyres Limited. Both questions were answered in the affirmative, in favour of the assessee and against the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the CIT(A)'s order deleting the addition of Rs. 61,602/- being the difference in the amount of depreciation as a result of changing the method of providing depreciation from straight line method to written down value method? 2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the CIT(A)'s order deleting the disallowance of Rs. 9,58,068/- representing the assessee's claim for depreciation as prior period adjustments as a result of the assessee's switch over from straight line method to written down value method for providing depreciation? Assessee's Contention: The assessee argued that for Section 115J of the Income Tax Act, 1961, only adjustments specified in the explanation to the section could be made to book profits, and depreciation was not among them. The company's accounts were prepared according to Schedule VI of the Companies Act, and the AO erred in disallowing depreciation. The assessee relied on various ITAT decisions, including Beta Naphthol P. Ltd. v. Dy. CIT, Dy. CIT vs. Samir Diamond Mfg. Ltd., and Sterling Steels & Wires Ltd. vs. DCIT. Revenue's Contention: The Revenue contended that the company should provide depreciation only in accordance with the rates prescribed in the Companies Act and could not adopt a method switch from SLM to WDV.

Which sections of the Income-tax Act were involved?

Section 115J

AI-generated summary — verify with the full judgment below

ITR/55/1999 1/9 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 55 of 1999 For Approval and Signature: HONOURABLE MR.JUSTICE JAYANT PATEL HONOURABLE MR.JUSTICE AKIL KURESHI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= COMMISSIONER OF INCOME TAX - Applicant(s) Versus M/S. RUBAMIN PRIVATE LTD. - Respondent(s) ========================================================= Appearance : MR MANISH R BHATT for Applicant(s) : 1, SERVED BY RPAD - (N) for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE AKIL KURESHI Date : 04/07/2008 ORAL JUDGMENT

ITR/55/1999 2/9 JUDGMENT (Per : HONOURABLE MR.JUSTICE AKIL

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