COMMISSIONER OF INCOME TAX vs. KOTHARI OIL PRODUCTS CO. LTD.

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ITR/153/1984HC GujaratGJHC24011827198402 February 1999Author: HONOURABLE DR. JUSTICE J.N.BHATT,HONOURABLE MR. JUSTICE ANIL R. DAVE4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the view taken by the Tribunal was unsustainable. Section 80VV provided for a deduction in respect of expenses incurred in connection with certain proceedings under the Act, with an aggregate monetary ceiling of Rs. 5,000/-. The AO had correctly allowed Rs. 5,000/-. Section 37, as amended by the Taxation Laws (Amendment) Act, 1975, effective from April 1, 1976, allowed expenditure other than those mentioned in Sections 30 to 36 and Section 80VV, provided it was not capital or personal expenditure and was wholly and exclusively for business purposes. The Court noted that Section 80VV itself was introduced by the same amendment. It appeared the Tribunal's attention was not drawn to these amendments. Therefore, the Tribunal's decision allowing Rs. 12,860/- was incorrect. The Court answered the reference in favour of the Revenue.

What were the facts?

The assessee, Kothari Oil Products Co. Ltd., claimed a deduction of Rs. 15,860/- for legal expenses incurred in Assessment Year (AY) 1977-78, relating to expenses from AY 1974-75 and 1975-76. The Assessing Officer (AO) allowed Rs. 5,000/- and disallowed the balance under Section 80VV. The Commissioner (Appeals) upheld the AO's order. The Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's appeal, allowing Rs. 3,500/- under Section 80VV, disallowing Rs. 3,000/- as non-business expenditure, and allowing the remaining Rs. 9,360/- under Section 37, resulting in a total allowable deduction of Rs. 12,860/-. The Revenue has referred the matter to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the sum of Rs. 12,860/- incurred as legal expenses for the assessment year 1974-75 and 1975-76 was allowable under section 80VV and u/s 37 of the Income-tax Act, 1961? Assessee's contentions: The assessee claimed the legal expenses as deductible. The ITAT allowed a portion under Section 80VV and the balance under Section 37. Revenue's contentions: The Revenue argued that the ITAT's decision was unsustainable in light of the provisions of Section 37 read with Section 80VV, as they stood at the relevant time, particularly concerning the amendment by the Taxation Laws (Amendment) Act, 1975, effective from April 1, 1976.

Which sections of the Income-tax Act were involved?

Section 80VV,Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 153 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE J.N.BHATT and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes

2.

To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To e referred to the Reporter or not? No @@2. To be referr d to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? o @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the Reporter or not? No @@2. To be referred to the R porter or not? No @@2. To be referred to the Reporter o no

3.

Whether Their Lordships wish to see the fair copy of the judgement? No 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? No -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus KOTHARI OIL PRODUCTS CO. LTD. -------------------------------------------------------------- Appearance: MR BB NAIK with MR MANISH R BHATT for Petitioner

SERVED BY RPAD - (N) for Respondent No. 1

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

CORAM : MR.JUSTICE J.N.BHATT and MR.JUSTICE A.R.DAVE Date of decision: 02/02/99

ORAL JUDGEMENT (per J.N. Bhatt, J.)

At the instance of the Revenue, the Income Tax Appellate Tribunal, Ahmedabad Bench 'A' has referred the following question of law arising out of its order dated 21.7.1983 in I.T.A. No. 1603/Ahd/1981 relating to Assessment Year 1977-78. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the sum of Rs. 12,860/incurred as legal expenses for the assessment year 1974-75 and 1975-76 was allowable under section 80VV and u/s 37 of the Income-tax Act, 1961?"

2.

The reference has arisen on account of the view of the appellate tribunal, in its impugned order dated 21.7.83, whereby the claim of the assessee company, of the deduction towards the expenditure in A.Y. 1977-78, for the legal expenses incurred by the assessee company for the two years 1974-75 and 1975-76, was partly allowed.

3.

The assessee company claimed an expenditure of Rs. 15,860/- in respect of legal expenses for the A.Y. 1977-78 out of which the ITO had allowed a sum of Rs. 5,000/- and disallowed the balance in the light of the provisions of Sec. 80VV of the Income-tax Act, 1961 (I.T. Act for short) whereas the Commissioner of Income-tax (Appeals), in an appeal at the instance of the assessee, upheld the order of the ITO. At the instance of the assessee, the matter was carried to the Income Tax Appellate Tribunal. The Tribunal held that, out of the total expenditure of Rs. 15,860/-, by way of legal expenses for the years 1974-75 and 1975-76, a sum of Rs. 3500/- could be allowed u/s 80VV, whereas, out of the balance, Rs. 3000/- was disallowable as non-business expenditure and the remaining sum of Rs. 9360/- was allowable u/s 37 of the I.T. Act. In the result, as per the opinion of the Tribunal, the total deduction of Rs. 12,860 (Rs. 3500 u/s 80VV + Rs. 9360 u/s 37 = Rs. 12860) was allowable. Hence, the Department had proposed

the reference for the opinion of this Court.

4.

Despite the service to the opponent assessee company, none has appeared. However, we have gone through the entire record. After hearing the Learned Counsel for the applicant-Revenue, we are of the opinion that the view taken by the Tribunal is unsustainable in view of the plain perusal of Sec. 37 read with Sec. 80VV, as it then stood in the I.T. Act.

5.

The reason assigned by the Appellate Tribunal in paras 4 and 5 are not sustainable. Section 80VV provides for deduction in respect of expenses incurred in connection with certain proceedings under the Act with upper monetary ceiling of, in aggregate, Rs. 5,000/-. Therefore, the assessee would be entitled to deduct as an expenditure, from the income, of any expenditure incurred by it in the previous year, in respect of any proceedings before the authority under the I.T. Act, maximum to the tune of Rs. 5,000/-, as per the proviso to Sec. 80VV. Accordingly, the ITO had allowed a sum of Rs. 5,000/- as an expenditure out of the claim of Rs. 15,860/- which also came to be confirmed in the first appeal before the CIT (Appeals).

6.

Section 37 relates to the general provisions of expenditure allowable as deduction from the income. By virtue of an amendment introduced by the Taxation Laws (Amendment) Act, 1975, which came into operation with effect from 1.4.1976, any expenditure other than the expenditure of nature mentioned in sections 30 to 36, and also u/s 80VV, and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purposes of business or profession, shall be allowed in computing the income chargeable under the head "Profits and Gains of Business or Profession". It will also be interesting to note that the provisions of sec. 80VV as such came to be introduced by virtue of the Taxation Laws (Amendment) Act, 1975 with effect from 1.4.1976, though the expenditure claimed by the assessee company was incurred for the years 1974-75 and 1975-76, was claimed by way of deduction u/s 37 and 80VV of the I.T. Act, for the A.Y. 1977-78. 7. It appears that the attention of the Tribunal was not drawn to the amendments referred by us hereinabove. In the circumstances of the case, and in the light of the clear provisions of sections 37 and 80VV of the I.T. Act, we are of the clear opinion that the reference deserves to be decided in favour of the revenue.

8.

As a result of the aforesaid discussion, we answer the question referred to us, in affirmative, that is to say, in favour of the Revenue and against the assessee. There shall be no order as to costs.

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