BARODA COMMERCIAL CORPN. PVT. LTD. vs. COMMISSIONER OF INCOME TAX

ITR/80/1986HC GujaratGJHC24010704198624 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA7 pages
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What were the facts?

The assessee, Baroda Commercial Corpn. Pvt. Ltd., is challenging an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment years 1969-70 and 1970-71. The Assessing Officer (AO) initiated proceedings under Section 104 of the Income Tax Act, 1961, for failure to distribute the prescribed minimum dividend. The AO levied additional tax. The Appellate Assistant Commissioner (AAC) allowed the assessee's appeal, but the revenue appealed to the ITAT, which set aside the AAC's order and directed a fresh decision. The AAC again allowed the appeal, leading to another revenue appeal before the ITAT, which partly allowed it. The core dispute involves the deductibility of expenses incurred on maintaining a closed factory at Chanasma and a guest house for determining distributable income under Section 109(i)(g)(4).

What did the High Court hold?

The High Court held that the Tribunal was correct in its conclusion. The Court noted that the assessee had discontinued its business and the Chanasma factory was closed and not used for manufacturing activity. The income derived from the factory building was assessed as 'income from house property'. The Court referred to Section 109(i)(g)(4), which allows deduction of expenditure actually incurred for the purposes of the business. Since the business was closed down and the factory was not used for business purposes, the expenditure incurred on its maintenance could not be considered as being for the purpose of the business. Consequently, such expenditure could not be deducted from the gross total income for arriving at the distributable income. The Court answered the referred question in the affirmative, in favour of the revenue and against the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the expenditure incurred on the maintenance of Chanasma factory (a closed factory where no business is done) and the guest house expenses cannot be deducted under Section 109(i)(g)(4) for the purpose of determining the distributable income? Assessee's Contentions: - The expenditure incurred on the maintenance of the Chanasma factory and guest house was for the purpose of business and ought to be deducted for arriving at the distributable income under Section 109(i)(g)(4), even if not allowed as a business expense under Section 37. - Relied on CIT, Kerala v. Malayalam Plantations Ltd., 53 ITR 140, for the proposition that expenditure incurred for the purpose of business should be deducted. - Argued that the revenue should not have invoked Section 104 due to the meagre expenditure and smallness of profit, citing CIT, Bombay City v. Bipinchandra Maganlal & Co. Ltd., 41 ITR 290. Revenue's Contentions: - The Tribunal correctly interpreted Sections 104 and 109(i)(g)(4). - The Chanasma factory was closed, and no business was being conducted, therefore, the expenditure could not be treated as business expenditure. - Continuation of business is necessary to incur expenditure for its purpose; if there is no business, no amount can be spent for its maintenance. - The expenditure on the factory and guest house could not be deducted from gross total income under Section 109(i)(g)(4).

Which sections of the Income-tax Act were involved?

Section 104,Section 109(i)(g)(4),Section 37,Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 80 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO

The order continues below.

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