COMMISSIONER OF INCOME TAX vs. S.G. CHEMICALS & PHARMACEUTICALS LTD

ITR/295/1987HC GujaratGJHC24012025198712 April 2002Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
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What did the High Court hold?

On the first issue, the High Court held that the Tribunal was right in including the cost of plant and machinery under erection and the cost of building under construction in the capital base for Section 80J deduction. This was based on the High Court's own decisions in CIT vs. Cibatul Limited and CIT vs. Gujarat State Fertiliser Co.Ltd., which were approved by the Supreme Court in CIT vs. Karnataka Power Corporation. For the second issue, the High Court held that the Tribunal was wrong in allowing investment allowance on amounts paid due to exchange rate fluctuations. Relying on CIT vs. Windsor Foods Ltd., the court stated that investment allowance, once worked out, cannot be reduced by subsequent fluctuations. On the third issue, the High Court held that the exchange loss of Rs. 28,79,813 was not allowable as a deduction. Following CIT vs. Windsor Foods Ltd. and the Supreme Court's decision in Sutlej Cotton Mills Ltd., the court determined that the additional liability due to exchange rate fluctuation was of a capital nature and not revenue expenditure. The reference was disposed of accordingly.

What were the facts?

This case involves an Income Tax Reference before the High Court of Gujarat at Ahmedabad, arising from an order of the Income-Tax Appellate Tribunal, Ahmedabad Bench "C". The reference was made at the instance of the Commissioner of Income Tax (CIT) and the assessee, S.G. Chemicals & Pharmaceuticals Ltd. The core of the dispute revolves around the computation of deductions under Section 80J and the allowability of investment allowance and exchange loss. The assessment years are not explicitly stated but are implied to be those for which the Tribunal's order was passed. The procedural history involves appeals to the CIT(A) and then to the Tribunal, with the Tribunal's decision leading to the present reference to the High Court.

What were the issues?

The Tribunal had to decide three questions referred to the High Court: 1. Whether the cost of plant and machinery under erection and the cost of building under construction were to be included in the capital base for purposes of deduction under Section 80J of the Income-Tax Act, 1961. The assessee contended for inclusion, while the revenue opposed it. The Tribunal, following High Court decisions, accepted the assessee's claim. 2. Whether the assessee is entitled to investment allowance in respect of the amount paid as a result of fluctuation in exchange rate. The Tribunal, relying on its earlier decision, held that the principal amount would qualify. The revenue contended that investment allowance should not be allowed on amounts arising from subsequent exchange rate fluctuations. The High Court considered its prior ruling in CIT vs. Windsor Foods Ltd. 3. Whether the amount of Rs. 28,79,813 claimed by the assessee as exchange loss consequent to fluctuation in exchange rate was allowable as a deduction. The assessee claimed it as a deductible loss, while the revenue contended it was not allowable. The High Court referred to its decision in CIT vs. Windsor Foods Ltd. and a Supreme Court decision in Sutlej Cotton Mills Ltd. vs. CIT.

Which sections of the Income-tax Act were involved?

Section 80J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 295 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE KUNDAN SINGH

============================================================ 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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