DEEPAK NITRITE LTD. vs. COMMISSIONER OF INCOME-TAX

ITR/54/1987HC GujaratGJHC24011787198719 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What were the facts?

This case involves an Income Tax Reference filed by Deepak Nitrite Ltd. (the assessee) against the Commissioner of Income-tax (the revenue). The reference was made at the instance of the assessee to the High Court of Gujarat for its opinion on three questions framed by the Income Tax Appellate Tribunal, Ahmedabad Bench "B". The procedural history indicates that the Tribunal referred these questions under Section 256(1) of the Income Tax Act, 1961. The High Court was to provide its opinion on these specific legal points arising from the Tribunal's decision. The judgment does not specify the assessment year(s) or the amounts in dispute for each question, other than the specific sums mentioned in questions 2 and 3.

What did the High Court hold?

The High Court addressed each of the three referred questions based on established legal precedents. For the first question, concerning the treatment of commission paid to directors for disallowance under Section 40(c), the Court answered in the affirmative, in favour of the revenue and against the assessee. This decision was based on the law laid down in CIT vs. Rohit Mills Ltd., 219 ITR 228. For the second question, regarding the allowability of exchange fluctuation loss of Rs. 87,275/- on a loan for machinery purchase as revenue expenditure, the Court answered in the negative, favouring the revenue and against the assessee. This was guided by the ruling in Ambica Mills Ltd. vs. CIT, 235 ITR 265. Finally, for the third question, concerning the allowability of guarantee commission of Rs. 56,840/- as revenue expenditure, the Court answered in the affirmative, in favour of the assessee and against the revenue, following the decision in Addl. CIT vs. Akkamamba Textiles Ltd., 227 ITR 464. The reference was disposed of accordingly.

What were the issues?

The Tribunal referred three questions for the High Court's opinion: 1. Whether the commission paid to the Managing Director and whole-time Director can be treated as remuneration for the purpose of working out the disallowance under Section 40(c) of the Income Tax Act, 1961? This is a question of law concerning the interpretation of Section 40(c). 2. Whether a sum of Rs. 87,275/- paid by the Company in respect of a loan taken for the purchase of machinery, arising on account of exchange fluctuation, was allowable as revenue expenditure? This is a mixed question of law and fact concerning the nature of expenditure under Section 37. 3. Whether a sum of Rs. 56,840/- paid on account of guarantee commission by the assessee Company was allowable as revenue expenditure? This is also a mixed question of law and fact concerning the deductibility of expenditure under Section 37. The assessee, through its advocate Mr. Manish J. Shah, sought a favorable interpretation on these issues. The revenue, represented by Mr. Akil Qureshi, contended for its position on each question. The judgment does not detail the specific arguments or precedents cited by either side, but refers to prior High Court judgments for resolution.

Which sections of the Income-tax Act were involved?

Section 40(c),Section 256(1),Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 54 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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