COMMISSIONER OF INCOME TAX vs. CHEMICOAT LTD.

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ITR/81/1988HC GujaratGJHC24013158198816 January 2001Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE MOHIT S. SHAH2 pages

AI SummaryAllowed

What did the High Court hold?

The High Court held that the question referred to them was squarely covered by its own previous decision in CIT vs. Chemi Coat Ltd. for Assessment Years 1977-78 and 1978-79. In that prior decision, the Division Bench had taken the view that the expenses incurred for setting up the new unit, the Kandla Project, were revenue expenditure. Therefore, following its own precedent, the High Court answered the question in favour of the assessee and against the revenue. The reference was disposed of accordingly with no order as to costs. The principle established is that expenses for setting up a new unit, if determined to be revenue in nature in a prior assessment year for the same assessee and project, will be treated as such in subsequent years, based on the High Court's binding precedent.

What were the facts?

This case involves an Income Tax Reference filed by the revenue (Commissioner of Income Tax) at the instance of the Income-tax Appellate Tribunal, Ahmedabad Bench "C". The reference pertains to Assessment Year 1980-81 and concerns an expenditure of Rs. 4,02,846/- incurred for setting up a new unit, the Kandla Project. The assessee is Chemicoat Ltd. The respondent (assessee) was served with a notice but did not appear. The revenue's counsel argued that the controversy is squarely covered by a previous decision of the same High Court in CIT vs. Chemi Coat Ltd. for Assessment Years 1977-78 and 1978-79, which held similar expenses for the Kandla Project to be revenue expenditure.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the expenses of Rs. 4,02,846/- for setting up a new unit, the Kandla Project, constituted revenue expenditure? (Question of law) Assessee's Contentions: Not recorded as the assessee did not appear. Revenue's Contentions: The revenue argued that the issue is identical to a prior decision by the High Court in CIT vs. Chemi Coat Ltd. (for AY 1977-78 and 1978-79), which held that expenses for setting up the Kandla Project were revenue expenditure. The revenue relied on this previous judgment of the High Court.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 81 of 1988

For Approval and Signature:

Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

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?

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus CHEMICOAT LTD. -------------------------------------------------------------- Appearance: MR BB NAIK with MR MANISH R BHATT for Petitioner NOTICE SERVED for Respondent No. 1

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CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH Date of decision: 16/01/2001

ORAL JUDGEMENT (Per : MR.JUSTICE J.M.PANCHAL) At the instance of the revenue, the Income-tax Appellate Tribunal, Ahmedabad Bench "C" has referred the following question of law for our opinion in respect of Assessment Year 1980-81 :-

"Whether on the facts and in the circumstances of the case the Tribunal was right in law in coming to the conclusion that the expenses of Rs.4,02,846/- for setting up a new unit viz. Kandla Project was a revenue expenditure ?"

Though served, no one appears on behalf of the respect of Assessment Years 1977-78 and 1978-79 decided by the Division Bench comprising B.C. Patel and K.M. Mehta, JJ on December 20, 1999 in ITR No. 260 of 1984 with ITR No. 333 of 1984. In the above referred to decision, the Division Bench has taken a view that the expenses incurred for setting up a new unit i.e. Kandla Project was a revenue expenditure.

In view of the decision of the High Court referred to above, the question referred to us is answered in favour of the assessee and against the revenue. The reference stands accordingly disposed of with no order as to costs.

(J.M. Panchal, J.) (M.S. Shah, J.)

sundar/-

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