COMMISSIONER OF INCOME TAX vs. SWASTIK SANITARY WORKS LTD.

ITR/180/1995HC GujaratGJHC24022503199527 April 2006Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE BANKIM.N.MEHTA7 pages
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What were the facts?

The assessee, Swastik Sanitary Works Ltd., filed its return for Assessment Year 1985-86 on September 30, 1985, reporting a loss. The Assessing Officer (AO) completed the assessment on February 11, 1988, computing business loss and unabsorbed depreciation. While allowing carry forward of unabsorbed depreciation, the AO disallowed carry forward of business loss, stating that the assessee's application for extension of time to file the return (Form No. 6) was not granted. The Commissioner of Income-Tax (Appeals) allowed the carry forward of business loss, holding that the AO's failure to respond to the extension request implied its acceptance. The Income-Tax Appellate Tribunal upheld this decision, leading to the present reference to the High Court.

What did the High Court hold?

The High Court answered both questions in the affirmative, in favour of the assessee. Regarding the first issue, the Court relied on its own decision in Commissioner of Income-Tax, Gujarat-IV v. Gordhanbhai Jethabhai, holding that when an application for extension of time to file a return is not disposed of by the Income-Tax Officer, the assessee is justified in entertaining a reasonable belief that the application has been granted. The Court emphasized the department's duty to intimate refusal of extension, stating that failure to do so implies the time is deemed extended. Therefore, the Tribunal was right in allowing the carry forward of business loss. For the second issue, the Court found it squarely covered by the Supreme Court's decision in Commissioner of Income-Tax v. P.J.Chemicals Ltd. The Supreme Court held that government subsidies intended as incentives for backward areas are not payments to meet any portion of the 'actual cost' and should not be deducted from the actual cost for calculating depreciation and investment allowance. The Court directed that both questions be answered in favour of the assessee.

What were the issues?

The High Court was asked to decide two questions of law: 1. Whether the Appellate Tribunal was right in law and on facts in directing the Income-Tax Officer to allow the carry forward of business loss, even though the time for filing the return was not extended by the Income-Tax Officer. - Assessee's contention (as per lower authorities): The assessee filed Form No. 6 seeking an extension until September 30, 1985. As no reply was received from the AO, the assessee was justified in proceeding under the belief that the extension was granted. The AO had a duty to respond to the application. - Revenue's contention: The time for filing the return was not formally extended by the AO. 2. Whether the Appellate Tribunal was right in law and on facts in directing the Income-Tax Officer to allow depreciation and investment allowance on the costs of assets without deducting the amount of subsidy. - Assessee's contention (as per lower authorities): Depreciation and investment allowance should be allowed on the full cost of assets, irrespective of subsidies received. - Revenue's contention: Subsidies received should be deducted from the cost of assets before calculating depreciation and investment allowance.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 43(1)

AI-generated summary — verify with the full judgment below

ITR/180/1995 1/7 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 180 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE J.M.PANCHAL

HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ========================================================= 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 Versus SWASTIK SANITARY WORKS LTD. - Respondent ========================================================= Appearance : MR MANISH R BHATT for Applicant SERVED BY RPAD - (N) for Respondent. ========================================================= CORAM :  HONOURABLE MR.JUSTICE J.M.PANCHAL and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 27/04/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE J.M.PANCHAL)

ITR/180/1995 2/7 JUDGMENT The

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