COMMISSIONER OF INCOME TAX vs. CADILA LABORATORIES PVT. LTD.

ITR/297/1993HC GujaratGJHC24021321199306 December 2001Author: HONOURABLE MR. JUSTICE B.C.PATEL,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What were the facts?

The Gujarat High Court was hearing an Income Tax Reference concerning the assessment year 1985-86. The reference was made at the instance of both the Revenue (Commissioner of Income Tax) and the Assessee (Cadila Laboratories Pvt. Ltd.). The first issue involved whether depreciation and investment allowance should be calculated without deducting subsidy amounts from the actual cost. The second and third issues, which were intertwined, concerned the disallowance of expenditure on samples distributed by the assessee, specifically whether 50% of the cost should be included in the computation for disallowance under Section 37(3A) of the Income-tax Act, 1961.

What did the High Court hold?

The High Court held that the first question concerning depreciation and investment allowance was concluded by the Apex Court's decision in C.I.T. vs. P.J. Chemicals Ltd., 210 I.T.R. 830. Following this precedent, the Tribunal was correct in directing the Assessing Officer to calculate depreciation and investment allowance without deducting the subsidy from the actual cost. Therefore, the first question was answered in the affirmative, in favour of the assessee. Regarding the second and third questions concerning the expenditure on samples, the Court noted the Apex Court's decision in Eskayfe (now Smith Kline Beecham Pharmaceuticals [India] Ltd.) vs. C.I.T., 245 I.T.R. 116, which held that samples of prescription drugs distributed to doctors for publicity and sales promotion fall within the scope of Section 37(3A) and are subject to its limitations. Since the Tribunal had allowed 50% of the expenditure and disallowed the rest, and the assessee challenged the disallowance of the balance 50%, the Court declined to answer the assessee's question. The Court directed the Tribunal to compute the limit of disallowable sum under Section 37(3A) in conformity with the Eskayfe judgment and pass necessary orders. The reference was disposed of accordingly.

What were the issues?

1. Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to calculate the depreciation and investment allowance without deducting the amount of subsidy from the actual cost? (Question of law and fact, concerning the computation of actual cost for depreciation and investment allowance). 2. Whether, the Appellate Tribunal is right in law and on fact in directing the Assessing Officer not to include 50% of the cost of samples in the computation for disallowance under section 37(3A) of the Act? (Question of law and fact, concerning the scope of Section 37(3A) and the allowability of expenditure on samples). 3. Whether the Income-tax Appellate Tribunal was right in law in holding that 50% of the expenditure on cost of samples distributed by the assessee should be included in the computation for disallowance u/s.37(3A) of the I.T.Act? (Question of law and fact, concerning the disallowance under Section 37(3A)). Assessee's contentions: The assessee argued that the expenditure on samples should not be subject to disallowance under Section 37(3A) to the extent it was allowed by the Tribunal (50%). Revenue's contentions: The Revenue argued that the Tribunal was wrong in allowing depreciation and investment allowance without deducting subsidy from the actual cost. It also argued that the Tribunal erred in not including 50% of the cost of samples in the computation for disallowance under Section 37(3A).

Which sections of the Income-tax Act were involved?

Section 256(1),Section 37(3A),Section 260(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 297 of 1993

For Approval and Signature:

Hon'ble MR.JUSTICE B.C.PATEL 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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