COMMISSIONER OF INCOME TAX vs. BHARAT VIJAY MILLS LTD.

ITR/143/1984HC GujaratGJHC24011817198423 December 1998Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
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What were the facts?

The Commissioner of Income Tax (Revenue) referred two questions of law arising from an Income Tax Appellate Tribunal (ITAT) order concerning Bharat Vijay Mills Ltd. (Assessee) for Assessment Year 1977-78. The first question concerned the treatment of Rs. 48,000 paid as deferred annuity premium for two Managing Directors, and whether it should be treated as perquisites. The second question pertained to the Assessee's eligibility for investment allowance under Section 32A of the Income Tax Act, 1961, for machinery installed for its plastic division. The ITAT had previously affirmed the decision of the CIT(Appeals), which had, in turn, affirmed the ITO's decision.

What did the High Court hold?

Regarding Question 1, the High Court held that the payment of deferred annuity premium in respect of the lives of directors is not allowable as an expense under Section 37 of the Income Tax Act, 1961. Consequently, there is no application of Section 40(c). The Court followed its earlier decision in Gujarat Steel Tubes Ltd. v. CIT, 210 ITR 358. Therefore, Question 1 was answered in the negative, in favour of the Revenue and against the Assessee. Regarding Question 2, the High Court noted that the ITAT's statement of case was incorrect in suggesting that the CIT(Appeals) had allowed the Assessee's appeal, which the ITAT had affirmed. The Court found that the findings of the ITO, CIT(Appeals), and ITAT were to the contrary, holding that the investment in machinery for the plastic division was not eligible for investment allowance under Section 32A as plastic was not listed in the Ninth Schedule. The Court declined to answer Question 2, stating that it appeared to have been incorrectly referred, though it was prima facie in agreement with the conclusion reached by the Tribunal.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the payment of Rs. 48,000 as deferred annuity premium in respect of two Managing Directors should not be treated as perquisites? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee is entitled to investment allowance under Section 32A of the Income-tax Act, 1961 as claimed? (Question of law) Assessee's contentions: For Question 1: Not recorded. For Question 2: The Assessee contended that it is entitled to investment allowance because its main industrial activity is manufacturing textiles, which is listed in the Ninth Schedule of the Act, and the plastic division's activities are composite with its main business. Revenue's contentions: For Question 1: Not recorded. For Question 2: The Revenue contended that the investment in machinery for the plastic division is not eligible for investment allowance under Section 32A because plastic is not an article or thing specified in the Ninth Schedule of the Act.

Which sections of the Income-tax Act were involved?

Section 32A,Section 37,Section 40(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 143 of 1984

For Approval and Signature:

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

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

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?

5.

Whether it is to be circulated to the Civil Judge? 1 to 5 : No

The order continues below.

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