COMMISSIONER OF INCOME TAX vs. CADILA LABORATORIES LIMITED.

ITR/1/2003HC GujaratGJHC24025657200301 November 2006Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE R.S.GARG4 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, made a reference to the High Court of Gujarat concerning two appeals (IT Appeal Nos. 3556 and 3877/Ahd/1992) for Assessment Years 1989 and 1990. The reference arose at the instance of the Revenue. The Assessee is Cadila Laboratories Limited, and the Revenue is the Commissioner of Income Tax. The High Court was asked to decide two questions of law. The first question concerned the deductibility of a premium of Rs. 1,05,000 paid for deferred annuity policies for two directors as business expenditure. The second question related to allowing deduction under Section 80I without reducing deductions admissible under Section 80HH.

What did the High Court hold?

The High Court decided both questions. Regarding Question No. 2, the Court held that the Appellate Tribunal was right in law and on facts in confirming the CIT(A)'s order directing the Assessing Officer to allow deductions under Section 80I without reducing deductions admissible under Section 80HH. The Court relied on its own decision in *Commissioner of Income-Tax vs. Apollo Construction Co. P. Ltd.* (ITR 30 of 1999) and the decision in *Commissioner of Income Tax vs. Sidhpur Isabgul Processing Co. Ltd.* (252 ITR 777). For Question No. 1, the Court held that the Tribunal was not right in law or on facts in confirming the CIT(A)'s order allowing the premium of Rs. 1,05,000 paid for deferred annuity policies for two directors as business expenditure. The Court found the Tribunal's reliance on *Gujarat Steel Tubes Ltd.* to be patently illegal and perverse, as that judgment was otherwise and decided in favour of the Revenue. The ratio is that premiums paid for deferred annuity policies for directors are not deductible as business expenditure, and the *Gujarat Steel Tubes Ltd.* case correctly states this principle.

What were the issues?

The High Court had to decide two questions of law: 1. Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the CIT(A) allowing the premium amounting to Rs. 1,05,000 paid towards the purchase of deferred annuity policies in respect of two directors as business expenditure, under Section 37 of the Income Tax Act, 1961. - **Revenue's Contention:** The Revenue argued that the Tribunal misapplied the judgment in *Gujarat Steel Tubes Ltd. vs. Commissioner of Income-Tax* (210 ITR 358), which was decided in favour of the Revenue, holding that premiums on deferred annuity policies for directors are not deductible. - **Assessee's Contention:** The Assessee conceded that the judgment in *Gujarat Steel Tubes Ltd.* was misapplied by the Tribunal. 2. Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the CIT(A) directing the Assessing Officer to allow deduction under Section 80I without reducing the deductions admissible under Section 80HH. - The judgment does not record specific arguments from either side for this issue, but it refers to prior High Court decisions.

Which sections of the Income-tax Act were involved?

Section 80I,Section 80HH,Section 37

AI-generated summary — verify with the full judgment below

ITR/1/2003 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 1 OF 2003 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE D.H.WAGHELA ========================================================= 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 CADILA LABORATORIES LIMITED. - Opponent(s) ========================================================= Appearance : MR. MANISH R. BHATT for Applicant(s). MR. B.D. KARIA for Opponent(s). ========================================================= CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE D.H.WAGHELA Date : 01/11/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG)

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