COMMISSIONER OF INCOME TAX vs. MEHSANA DISTRICT CO-OP. MILK PRODUCERS' UNION LTD.

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ITR/158/1985HC GujaratGJHC24012290198513 March 2001Author: HONOURABLE MR. JUSTICE B.C.PATEL,HONOURABLE MR. JUSTICE D.A.MEHTA4 pages
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What did the High Court hold?

In Reference No. 158 of 1985, the Court declined to answer the question regarding guest house expenses due to lack of material. However, it held that entertainment expenses of Rs. 23,422/- were allowable, relying on the Supreme Court decision in CIT v. Patel Brothers and Co. Ltd. For the second question, the Court held that work-in-progress and uninstalled machinery were to be included in the capital employed for computing relief under Section 80J, following the Supreme Court's decision in CIT v. Alcock Ashdown And Co. Ltd., which applied to Section 84 and by extension to Section 80J. In Reference No. 158A of 1985, the Court held that roads within factory premises are considered 'buildings' and not 'plant' for depreciation purposes, thus answering the first question against the Assessee, relying on CIT v. Gwalior Rayon Silk Manufacturing Co.Ltd. For the second and third questions concerning the Rs. 23,93,100/- machinery from Indian Dairy Corporation, the Court answered the second question in favour of the Assessee (allowing depreciation and development rebate) and the third question in favour of the Revenue (excluding it from capital employed for Section 80J). The reasoning for these answers was based on previous decisions of the High Court, including the Assessee's own case.

What were the facts?

This judgment concerns two Income Tax References (158 of 1985 and 158A of 1985) before the High Court of Gujarat at Ahmedabad, dealing with assessment year 1975-76. The Commissioner of Income Tax (Revenue) is the applicant in Reference No. 158 of 1985, while Mehsana District Co-operative Milk Producers' Union Ltd. (Assessee) is the respondent. In Reference No. 158A of 1985, the Assessee is the applicant and the Revenue is the respondent. The references arise from orders of the Income Tax Appellate Tribunal. The core disputes involve the allowability of certain expenses and the computation of relief under Section 80J of the Income Tax Act, 1961.

What were the issues?

The Tribunal had to decide several questions. In Reference No. 158 of 1985, the first question was whether the Assessee was entitled to a deduction of Rs. 13,358/- for guest house expenses and Rs. 23,422/- for entertainment expenses. The second question was whether, for computing relief under Section 80J, the cost of Rs. 12,28,595/- representing work in progress and uninstalled machinery was deductible from the cost of fixed assets. In Reference No. 158A of 1985, the questions were: (1) whether the Assessee was entitled to depreciation on factory roads at rates applicable to 'Plant'; (2) whether the Assessee was entitled to depreciation and development rebate on plant and machinery worth Rs. 23,93,100/- received from Indian Dairy Corporation; and (3) whether the value of this machinery was includible in the capital employed for Section 80J relief. Assessee's arguments were not explicitly recorded for the first question in Ref. 158, but the Tribunal's view was that the expenses were deductible. For the second question in Ref. 158, the Assessee likely argued for the inclusion of work-in-progress and uninstalled machinery in capital employed for Section 80J. For Ref. 158A, the Assessee likely argued for depreciation on roads as 'Plant', for depreciation and rebate on the IDC machinery, and for its inclusion in capital employed for Section 80J. Revenue's arguments were not explicitly recorded for the first question in Ref. 158, but their challenge implies they argued against the deductibility of guest house and entertainment expenses. For the second question in Ref. 158, Revenue likely argued against the inclusion of work-in-progress and uninstalled machinery in capital employed for Section 80J. For Ref. 158A, Revenue likely argued against depreciation on roads as 'Plant', against depreciation and rebate on the IDC machinery, and against its inclusion in capital employed for Section 80J.

Which sections of the Income-tax Act were involved?

Section 80J,Section 32,Section 84

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 158 of 1985 WITH INCOME TAX REFERENCE No 158A of 1985

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 -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus MEHSANA DISTRICT CO-OP. MILK PRODUCERS' UNION LTD. -------------------------------------------------------------- Appearance: MR BB NAIK FOR MR MANISH R BHATT for Petitioner MR MJ SHAH FOR MR JP SHAH for Respondent No. 1

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

CORAM : MR.JUSTICE B.C.PATEL and MR.JUSTICE D.A.MEHTA

Date of decision: 13/03/2001

COMMON JUDGEMENT (Per : MR.JUSTICE B.C.PATEL)

INCOME TAX REFERENCE NO.158 OF 1985. 1. For the assessment year 1975-76, the Commissioner of Income Tax, Gujarat II, Ahmedabad is applicant before us. The Income Tax Appellate Tribunal at the instance of the revenue made Reference to the Court raising following two questions :

"

1.

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that the assessee is entitled to deduction of Rs.13,358/- being the guest house expenses and Rs.23,422/- being the entertainment expenses ?"

"

2.

Whether the Income-tax Appellate Tribunal has been right in law in holding that in computing the relief under sec.80J of the Income-tax Act,1961 cost of Rs.12,28,595/- representing work in progress and machinery not installed was not deductible from the cost of fixed assets?"

2.

Question No.1 is in two parts : (i) deduction of Rs.13,358/- being the Guest House expenses being allowable and (ii) Rs.23,422/- the amount of entertainment expenses being allowable. The Tribunal was of the view that the assessee is entitled to get deduction. This question does not require any further discussion in view of the decision of the Apex Court in the case of Commissioner of Income-Tax V. Patel Brothers and Co.Ltd. and Others, reported in 215 ITR 165. Before the Court the question raised was whether, on the facts and in the circumstances of the case, the expenditure in question was in the nature of entertainment expenditure in law ? Considering the decision and the facts of the case the Court has decided answer in favour of the assessee and against the revenue.

3.

So far as the amount with regard to the Guest House Allowance is concerned, the question raised by the Revenue is covered by the decision of this Court in the case of Commissioner of Income-Tax V. Maharana Mills Ltd., reported in 208 ITR 294. However, during the assessment year and further years it is difficult to say that the amount was spent for maintenance of the Guest House. In absence of any material we are not in a position to answer the question, and therefore, we decline to answer the question about the amount

pertaining to the Guest House expenses.

4.

So far as the second question is concerned, the same requires no more debate in view of the binding decision of the Apex Court in the case of Commissioner of Income Tax V. Alcock Ashdown And Co. Ltd., reported in 224 ITR 353, wherein the Apex Court while affirming the decision of the High Court has held that the amount of Rs.21,17,178/-, representing the value of plant and machinery yet to be installed and the cost of workshops under construction, could be taken into account in determining the capital employed in the undertaking at Bhavnagar for the purpose of granting relief to the company in terms of section 84 of the Income-tax Act,1961 for the assessment year 1962-63. 5. In view of the fact that section 84 is now replaced by section 80J for which the aforesaid principle will apply and answer would be in favour of the assessee and against the revenue. Answered accordingly.

INCOME TAX REFERENCE NO.158A OF 1985. 6. While deciding Income Tax Reference No.158 of 1985 it is also found that at the instance of the assessee, The Income Tax Appellate Tribunal, Ahmedabad for the assessment year 1975-76, has made Reference raising three questions. At the instance of the assessee Reference was made. The assessee also submitted Paper Book but it appears that the Registry after giving number to the Reference at the instance of Commissioner of Income Tax deleted the name of Mehsana District Cooperative Milk Producers' Union Ltd. Under the circumstances, the Registry is directed to give Reference No. 158A to the Reference at the instance of the assessee Mehsana District Cooperative Milk Producers' Union Ltd., Mehsana. It is required to be noted that separate statement of case is available in the Paper Book at the instance of the assessee at page no.

9.

The questions referred are as under :-

"

1.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in holding that the assessee is not entitled to depreciation on roads in the factory premises at the rates applicable to 'Plant'?

2.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in holding that assessee is not entitled to depreciation and development rebate on Plant and Machineries worth Rs.23,93,100/- received from Indian Dairy Corporation ?

3.

Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law, in holding that the value of Plant and Machinery worth Rs.23,93,100/- received from Indian Dairy Corporation was not to be included in computation of capital employed for the purposes of granting relief u/s. 80J?"

7.

The Apex Court in the case of Commissioner of Income Tax V. Gwalior Rayon Silk Manufacturing Co.Ltd., reported in 196 I.T.R. 149 examined the question whether the roads and drains laid within factory premises are necessary adjuncts to factory buildings and are to be treated as 'Building' for purposes of depreciation. The Court pointed out that roads laid within factory premises as links or providing approach to the buildings to carry on the business activity of the assessee are 'buildings' within the meaning of section 32 of the Income-tax Act,1961. In view of the aforesaid, the assessee is not entitled to depreciation on roads in the factory premises at the rates applicable to plant, and therefore, Question No.1 is answered against the assessee and in favour of the revenue.

8.

So far as Question Nos. 2 and 3 are concerned the same are covered by various decisions of this Court including assessee's own case vide Income Tax Reference No.290 of 1984 decided on 24/12/1999. Therefore, we answer Question No.2 in favour of the assessee and against the revenue. So far as question no.3 is concerned, we answer in favour of the revenue and against the assessee. Answered accordingly. (B.C.Patel, J) (D.A.Mehta,J)

m.m.bhatt

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