SARABHAI CHEMICALS PVT. LTD. vs. COMMISSIONER OF INCOME TAX

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ITR/170/1989HC GujaratGJHC24012950198916 October 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA2 pages
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What did the High Court hold?

The High Court held that interest paid on borrowings for the purpose of income tax payment is not admissible as business expenditure. This decision was based on the High Court's own prior ruling in the case of Saraspur Mills Ltd. vs. CIT, 226 ITR 533. Consequently, the Tribunal was justified in upholding the disallowance of the interest amount. The question referred to the Court was answered in the affirmative, in favour of the revenue and against the assessee. The reference was disposed of with no order as to costs.

What were the facts?

This case concerns Income Tax Reference No. 170 of 1989, filed at the instance of the assessee, Sarabhai Chemicals Pvt. Ltd., for the assessment year 1981-82. The reference was pending for approximately 12 years. The revenue's counsel requested the High Court to take up the reference for final disposal, citing a direct decision of the Court on the issue, despite one of the judges having previously appeared for the assessee before the Income Tax Appellate Tribunal. The High Court agreed to hear the reference.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the disallowance of interest amounting to Rs.1,63,961/- claimed under Section 28 of Section 36(1)(iii) or Section 37 of the Income Tax Act, 1961? Assessee's contention: The assessee claimed the interest amount as a business expenditure. Revenue's contention: The revenue argued that the interest paid on borrowings for the purpose of income tax payment is not admissible as business expenditure. The revenue relied on the decision of the High Court in Saraspur Mills Ltd. vs. CIT, 226 ITR 533.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 37,Section 28

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 170 of 1989

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH 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 -------------------------------------------------------------- SARABHAI CHEMICALS PVT. LTD. Versus COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 170 of 1989 MR RK PATEL for Petitioner No. 1 MR BB NAIK with MR MANISH R BHATT for Respondent No. 1

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

CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE D.A.MEHTA

Date of decision: 16/10/2001

ORAL JUDGEMENT

(Per : MR.JUSTICE M.S.SHAH) Mr BB Naik learned counsel for the revenue makes a specific request that since this reference is pending for the last about 12 years and more particularly, since the controversy raised in this reference is concluded by a direct decision of this Court, this Bench may take up this reference for final disposal, notwithstanding the fact that one of us (Mr. D.A. Mehta,J) had appeared for the respondent-assessee at the hearing of the reference application before the Income Tax Appellate Tribunal.

In view of the above request, we take up this reference for final disposal.

2.

In this reference at the instance of the assessee, the following question is referred for our opinion in respect of assessment year 1981-82:-

"Whether on the facts and in the circumstances of the case, the Tribunal is justified in upholding the disallowance of interest amounting to Rs.1,63,961/- claimed u/s. 28 of sec.36 (1)(iii) or sec. 37 of the I.T. Act, 1961 ?"

3.

We have heard Mr RK Patel learned counsel for the zgs/-

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