COMMISSIONER OF INCOME TAX vs. CALAMA PUMPS PVT LTD

ITR/342/1993HC GujaratGJHC24021348199302 August 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI8 pages
AI SummaryRemanded

What were the facts?

The Commissioner of Income Tax (CIT) filed a reference before the Gujarat High Court concerning assessment years 1982-83 and 1983-84. The dispute involved the inclusion of Rs.11,93,448/- and Rs.12,05,517/-, respectively, as part of 'capital employed' for computing statutory deduction under the Surtax Act. These amounts were shown as a balance of surplus of the Profit & Loss account under the head 'general reserve' on the first day of the accounting year. The Assessing Officer rejected the assessee's claim. The Commissioner (Appeals) upheld the Assessing Officer's view, stating the sums were not specifically transferred to general reserve and could not be treated as capital employed. The Income Tax Appellate Tribunal (Tribunal) reversed this, holding the sums includible as reserves, relying on the Calcutta High Court's decision in Dunlop India Ltd. v. CIT.

What did the High Court hold?

The High Court found that neither the resolution referred to by the Commissioner (Appeals) nor the resolution referred to by the Tribunal was available on record. The Court noted that it was impossible to ascertain the content of these resolutions, when they were passed, whether they were approved by the General Body, and crucially, which accounting period they pertained to. In the absence of these fundamental facts, the Court concluded that it was not possible to answer the question referred. Consequently, the question was left unanswered. The Tribunal was directed to apply the settled legal position after ascertaining the facts on record, providing an opportunity for hearing, and potentially admitting additional evidence if necessary. The reference was disposed of accordingly.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that the amount shown as balance of surplus of P & L A/c. on the first day of the accounting year should be treated as capital employed for computing the deduction under the Surtax Act? Assessee's Contention: The assessee contended that the surplus amounts, by virtue of a subsequent resolution of the Board of Directors, were treated as reserves and thus should be included in the capital employed for calculating the statutory deduction under the Surtax Act. The Tribunal, in its order, upheld this contention, relying on the ratio of the Calcutta High Court's decision in Dunlop India Ltd. v. CIT (Calcutta), 141 ITR 542. Revenue's Contention: The revenue, through the Commissioner of Income Tax, challenged the Tribunal's decision. The Assessing Officer and the Commissioner (Appeals) had previously held that these amounts were not specifically transferred to general reserve and therefore could not be treated as capital employed. The Commissioner (Appeals) specifically noted that the Directors' resolution to treat the surplus as working capital ran counter to treating it as part of capital employed.

Which sections of the Income-tax Act were involved?

Section 18,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/342/1993 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 342 of 1993 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE 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 CALAMA PUMPS PVT LTD - Respondent(s) ============================================================== Appearance : MR MANISH R BHATT for Petitioner No(s).: 1. MR SN SOPARKAR for Respondent No(s).: 1. ================================================================== CORAM :  HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI Date : 02/08/2005 ORAL JUDGMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA)

ITR/342/1993 2/8 JUD

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