COMMISSIONER OF INCOME TAX vs. NAVDEEP INVESTMENTS PVT.LTD.

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ITR/38/1992HC GujaratGJHC24015389199204 September 2003Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE D.A.MEHTA2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court of Gujarat at Ahmedabad, following its own prior judgment on an identical issue for the same assessee in respect of Assessment Year 1981-82, answered the referred question in the affirmative. This means the Court upheld the Tribunal's decision that for an investment company, income from investment is to be treated as business income, and interest paid on monies borrowed for the purchase of shares is deductible from business income. Consequently, for the purpose of computing relief under Section 80-M, the interest paid on such borrowings is not to be deducted from income by way of dividend. The reference was disposed of accordingly, with no order as to costs. The operative direction was to answer the question in favour of the assessee and against the revenue.

What were the facts?

The Commissioner of Income Tax (Revenue) referred a question of law to the High Court of Gujarat at Ahmedabad concerning Navdeep Investments Pvt. Ltd. (Assessee) for Assessment Year 1983-84. The Income Tax Appellate Tribunal (ITAT) had ruled in favour of the assessee. The Revenue's counsel conceded that the present reference was identical to a previous reference for Assessment Year 1981-82 in the assessee's own case, which had already been answered in favour of the assessee. The dispute revolved around the treatment of income from investment and interest paid on borrowed money for share purchases.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in accepting the claim of the assessee that being an investment company, income from investment should be treated as business income? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that interest paid on monies borrowed for the purchase of shares was to be deducted from business income? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that for computing relief under Section 80-M, the interest paid on the said borrowing was not liable to be deducted from income by way of dividend? Assessee's Contention: The assessee argued that as an investment company, its income from investments should be treated as business income. Consequently, interest paid on borrowed funds for acquiring shares should be deductible from this business income. This would ensure that the interest expense is not deducted again when calculating eligible dividend income for relief under Section 80-M. Revenue's Contention: The Revenue's learned standing counsel conceded that the issue was identical to a previous reference for Assessment Year 1981-82, which had been decided in favour of the assessee.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 80-M

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 38 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.H.WAGHELA 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 concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? 1 to 5 NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus NAVDEEP INVESTMENTS PVT.LTD. -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 38 of 1992 MR MANISH R BHATT for Petitioner No. 1 SERVED BY RPAD - (N) for Respondent No. 1

--------------------------------------------------------------

CORAM : HON'BLE MR.JUSTICE D.H.WAGHELA and HON'BLE MR.JUSTICE D.A.MEHTA

Date of decision: 04/09/2003

ORAL JUDGEMENT (Per : HON'BLE MR.JUSTICE D.H.WAGHELA)

1.

The Income Tax Appellate Tribunal, Ahmedabad Bench has referred the following question of law under section 256 (1) of the Income-tax Act, 1961:-

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in accepting the claim of the assessee to the effect that the assessee being an investment company, the income from investment was to be treated as business income and that the interest paid on monies borrowed for purchase of shares was to be deducted from business income and as such for computing relief under sec. 80-M, the interest paid on the said borrowing was not liable to be deducted from income by way of dividend ?"

2.

While referring the above question, it is also mentioned that, for assessment year 1981-82 also, identical question has been referred to this Court for opinion in the assessee's own case.

3.

It was fairly conceded by the learned standing counsel, Mr.M.R.Bhatt, that the only difference between the earlier reference and the present reference is with regard to the assessment year which, in the present case, is 1983-84. It was also conceded that the aforesaid first reference being ITR No.36 of 1990 in respect of the assessment year 1981-82 has been answered in the affirmative, i.e. in favour of the assessee and against the revenue.

4.

Following the above judgment of this Court on the same issue in respect of the same assessee, we answer the question referred to us in the affirmative, i.e. in favour of the assessee and against the revenue. Reference stands disposed accordingly with no order as to costs. ( D.H.Waghela,J.) ( D.A. Mehta, J.) (KMG Thilake)

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