SYNBIOTICSLTD vs. COMMISSIONER OF INCOME TAX

ITR/170/1986HC GujaratGJHC24010794198606 February 2002Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE K.A.PUJ5 pages
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What did the High Court hold?

The High Court held as follows: On Question 1, it reversed the Tribunal's decision, finding that the guarantee commission of Rs. 50,345 was revenue expenditure. The Court relied on the Supreme Court's decisions in Additional CIT Vs. Akkamamba Textile Mills Ltd. (1997) and CIT Vs. Sivakami Mills Ltd. (1997), and its own decision in Ambica Mills Ltd. (1999), stating that the Tribunal's reliance on CIT Vs. Vallabh Glass Works Ltd. (1982) was not justified. On Question 2, the Court affirmed the Tribunal's disallowance of the exchange loss of Rs. 26,924. It followed the Supreme Court's decision in CIT Vs. Tata Iron & Steel Co. Ltd. (1998), holding that exchange fluctuations at the time of loan repayment do not alter the cost of an asset acquired for business. On Question 3, the Court upheld the Tribunal's confirmation of interest levied under Section 215, following a related decision of the High Court rendered on the same day. On Question 4, the Court held that the Tribunal ought to have set aside the Income Tax Officer's order for levying interest under Section 216 without recording the requisite findings and reasons, and remanded the matter to the Income Tax Officer for a fresh order as contemplated by the section, relying on Shree Digvijay Woollen Mills Ltd. Vs. Commissioner of Income Tax (1993).

What were the facts?

This judgment concerns an Income Tax Reference before the High Court of Gujarat at Ahmedabad. The assessee is Synbiotics Ltd., and the respondent is the Commissioner of Income Tax, Baroda. The reference arises from an order of the Income Tax Appellate Tribunal, Ahmedabad Bench "A". The Tribunal had decided issues concerning the disallowance of guarantee commission and exchange loss, and the levy of interest under Sections 215 and 216 of the Income Tax Act, 1961. The High Court was asked to opine on these matters. The specific assessment years are not explicitly stated for all issues, but the Tribunal's order being challenged is dated March 3, 1986. The amount in dispute for guarantee commission was Rs. 50,345, and for exchange loss, it was Rs. 26,924. The procedural history involves references made by both the assessee and the Revenue to the High Court.

What were the issues?

The High Court was called upon to decide four questions of law: 1. Whether the Tribunal was right in law in holding that the amount of Rs. 50,345 paid as guarantee commission was on capital account and disallowable? 2. Whether the Tribunal was right in law in holding that an amount of Rs. 20,924 in respect of exchange loss was disallowable as capital expenditure? 3. Whether the Tribunal was justified in law in confirming the levy of interest under Section 215 of the Act? 4. Whether the Tribunal was right in law in holding that charging of interest under Section 216 of the Act was not justified? Assessee's Contentions: For Question 1, the assessee argued that guarantee commission paid in such cases is a revenue expenditure, relying on the Supreme Court decision in CIT Vs. Sivakami Mills Ltd. (1997) and this Court's decision in Ambica Mills Ltd. Vs. Commissioner of Income Tax (1999). Revenue's Contentions: No specific contentions for the Revenue are recorded for Question 1. For Question 2, the Revenue's position is implicitly that the exchange loss is not allowable, as the Tribunal had disallowed it. For Question 3, the Revenue's position is that the levy of interest under Section 215 was justified. For Question 4, the Revenue's position is that the charging of interest under Section 216 was justified.

Which sections of the Income-tax Act were involved?

Section 215,Section 216

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 170 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI

and Hon'ble MR.JUSTICE K.A.PUJ

========================================================= 1. Whether Reporters of Local Papers may be allowed : YES 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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