COMMISSIONER OF INCOME-TAX vs. MADHUSUDAN VEGETABLE PRODUCTS CO LTD

ITR/139/1994HC GujaratGJHC24020216199404 October 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI7 pages
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What were the facts?

The Commissioner of Income-tax (Revenue) is in appeal against an order of the Income-tax Appellate Tribunal (Tribunal). The assessment year is not specified. The dispute concerns the computation of capital for the purpose of the Companies (Profits) Surtax Act, 1964. The Assessing Officer had reduced the general reserves of the assessee, Madhusudan Vegetable Products Co. Ltd., by Rs. 19,28,053. This reduction represented the difference between depreciation debited in the company's books (Rs. 23,78,708, calculated on a straight-line method) and depreciation allowed under the Income-tax Act (Rs. 42,56,761). The assessee's appeal before the CIT (Appeals) failed, but the Tribunal set aside the Assessing Officer's order.

What did the High Court hold?

The High Court held that the Tribunal was right in law and on facts. The scheme of the Companies (Profits) Surtax Act, 1964, requires computation of chargeable profits first, then capital under the Second Schedule, and finally a statutory deduction based on that capital. The dispute centered on the computation of capital under the Second Schedule. Rule 1(iii) of the Second Schedule mandates reducing other reserves by amounts credited to such reserves that have been allowed as a deduction in computing the income under the Income-tax Act. The Tribunal had made a categorical finding of fact that no such amounts had been credited to the reserves in the present case. Since this factual condition for reduction was not met, the Tribunal's decision to not allow the deduction was correct. The Revenue's reliance on the case of Anup Engineering Ltd. was unavailing as the factual matrix in that case was different. The question referred was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on a correct interpretation of the Companies (Profits) Surtax Act, 1964, the Tribunal was right in law and on facts in setting aside the order of the Inspecting Assistant Commissioner (Assessment) which deducted the difference between the depreciation allowed under the Income-tax Act and the depreciation as provided in the books of accounts from the reserves in the computation of capital for surtax purposes. Assessee's Contention: The Tribunal held that in the absence of any specific provision in the Second Schedule of the 1964 Act requiring such a deduction, no reduction could be made from general reserves while computing capital for surtax liability. Revenue's Contention: The Revenue argued that on a conjoint reading of provisions like Section 2(5) (chargeable profits), Section 2(8) (statutory deduction), Section 4 (charge of tax), and the First and Second Schedules of the 1964 Act, the Tribunal should not have granted relief and the capital computed by the Assessing Officer should have been upheld.

Which sections of the Income-tax Act were involved?

Section 256(2),Section 2(5),Section 2(8),Section 4

AI-generated summary — verify with the full judgment below

ITR/139/1994 1/7 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.139 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ===================================================== 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 MADHUSUDAN VEGETABLE PRODUCTS CO. LTD - Respondent(s) ===================================================== Appearance : MR MANISH R BHATT for Applicant(s) : 1, NOTICE SERVED for Respondent(s) : 1, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 04/10/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA)

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