CADILA CHEMICALS PVT.LTD. vs. COMMISSIONER OF INOCME TAX

ITR/59/1987HC GujaratGJHC24011792198719 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What were the facts?

This judgment concerns an Income Tax Reference before the High Court of Gujarat at Ahmedabad, arising from a decision of the Income Tax Appellate Tribunal, Ahmedabad Bench "A". The reference was made at the instance of both the assessee, Cadila Chemicals Pvt. Ltd., and the revenue. The Court heard arguments from learned advocates for both parties. The procedural history involves questions of law being referred to the High Court under Section 256(1) of the Income Tax Act, 1961, for its opinion. The specific assessment years are not mentioned in the judgment.

What did the High Court hold?

The High Court addressed each referred question based on prior judicial pronouncements. For the first question, concerning the deductibility of the cost of a diesel generating set as revenue expenditure, the Court relied on its own decision in the case of Cadila Laboratories Pvt. Ltd. Vs. C.I.T., I.T.R. 61 of 1987. Following this precedent, the Court held that the cost of a diesel generating set cannot be treated as revenue expenditure. Therefore, the first question was answered in the negative, against the assessee and in favour of the revenue. For the second question, regarding the applicability of Section 40A(8) to interest paid to directors and shareholders, the Court referred to the decision in Agew Steel Manufacturers Pvt. Ltd. vs. C.I.T., 209 ITR 77. Based on this ruling, the Court answered the question in the affirmative, meaning Section 40A(8) was applicable, which is against the assessee and in favour of the revenue. For the third question, concerning the deduction of cash subsidy from the cost of building and machinery for depreciation and investment allowance, the Court cited the judgment in C.I.T. vs. P.J.Chemicals, 210 I.T.R.830. Applying the principle from this case, the Court answered the question in the affirmative, in favour of the assessee and against the revenue. The reference was disposed of accordingly, with no order as to costs.

What were the issues?

The Tribunal had to decide three questions of law. The first question, at the instance of the assessee, was: 1. Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim the cost of a diesel generating set as revenue expenditure? The assessee argued that the cost of the diesel generating set should be treated as revenue expenditure. The second question, also at the instance of the assessee, was: 2. Whether, on the facts and in the circumstances of the case, the provisions of Section 40A(8) were applicable in respect of interest paid to the directors and shareholders of the Company? The assessee contended that Section 40A(8) was not applicable to interest paid to directors and shareholders. The third question, at the instance of the revenue, was: Whether, in law, the amount of cash subsidy is not to be deducted from the cost of building and machinery for working out depreciation and investment allowance? The revenue argued that cash subsidies should be deducted from the cost of assets for calculating depreciation and investment allowance. The judgment does not record specific arguments for the revenue on the second question or for the assessee on the third question, beyond stating the referred questions.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 40A(8)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 59 of 1987

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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