COOMMISSIONER OF INCOME-TAX vs. GUJARAT STATE FERTILIZERS CO. LTD.

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ITR/349/1983HC GujaratGJHC24011816198301 May 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal erred in its conclusion. It applied the ratio of the Supreme Court's decision in CIT vs. The Arvind Mills Ltd. (193 ITR, 255). The Supreme Court had clearly held that Section 43A(2) excludes any increase in the actual cost due to currency fluctuation from being considered for development rebate. The language of Section 43A(2) was found to be unambiguous, stating that for the purpose of development rebate, any such increase should not be taken into account. Therefore, the assessee could not claim development rebate on the increased cost in the face of this statutory provision. The question referred to the Court was answered in the negative, in favour of the revenue and against the assessee. The reference was disposed of with no order as to costs.

What were the facts?

The assessee, Gujarat State Fertilizers Co. Ltd., incurred additional liabilities of Rs. 23,26,965/- and Rs. 12,10,357/- for assessment years 1974-75 and 1976-77 respectively, due to fluctuations in exchange rates on payments made to M/s. Hitachi Ship Building Engineering Co.Ltd., Japan. The Income Tax Officer (ITO) rejected the assessee's claim to treat these amounts as revenue expenditure. The Commissioner of Income-tax (Appeals) allowed the claim as revenue expenditure. The Income-tax Appellate Tribunal (Tribunal) held that while the expenditure was not revenue, the assessee was entitled to development rebate on the increased cost of assets, notwithstanding Section 43A(2) of the Income-tax Act, 1961, relying on a High Court decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to development rebate in respect of the increase in the cost of assets due to currency realignment, notwithstanding the provisions of Section 43A(2) of the Income-tax Act, 1961? Assessee's contention: The assessee contended that the additional liability incurred due to currency fluctuation was an integral part of the original transaction and should be considered for enhancing the cost of machinery, thereby entitling them to development rebate under Section 33. The Tribunal upheld this contention, relying on the High Court's decision in The Arvind Mills Ltd. vs. CIT. Revenue's contention: The revenue argued that Section 43A(2) explicitly excludes any increase or decrease in the actual cost due to exchange rate fluctuations from being taken into account for the purpose of development rebate under Section 33. The Supreme Court's decision in CIT vs. The Arvind Mills Ltd. was cited to support this.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 43A(2),Section 33,Section 43A(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 349 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 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?

-------------------------------------------------------------- COOMMISSIONER OF INCOME-TAX Versus GUJARAT STATE FERTILIZERS CO. LTD. -------------------------------------------------------------- Appearance: MR B.B.Naik for Mr. MANISH R BHATT for Petitioner MR Manish Shah for Mr. JP SHAH for Respondent No. 1

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

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 01/05/98

ORAL JUDGEMENT (Per R.K.Abichandani,J)

The Income-tax Appellate Tribunal, Ahmedabad has referred the following question for the opinion of this Court under section 256(1) of the Income-tax Act, 1961. "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that notwithstanding the provisions of section 43A(2), the assessee was entitled to development rebate in respect of the increase in the cost of assets on account of realignment of currency ?"

2.

The matter pertains to the assessment years 1974-75 and 1976-77. The assessee had paid additional amounts of Rs. 23,26,965/- and Rs. 12,10,357/- for these two assessment years respectively to M/s. Hitachi Ship Building Engineering Co.Ltd., Japan 43A(2) which laid down that the provision of sub-section (1) of section 43A shall not be taken into account in computing actual cost of an asset for the purpose of deduction on account of development rebate under section 33, cannot therefore, be pressed into service to deny to the assessee the benefit which was available to it under section 33 itself. The decision of this Court in The Arvind Mills Ltd. (Supra) was challenged before the Supreme Court and has been reversed by the decision of the Hon'ble Supreme Court in the case of CIT vs. The Arvind Mills Ltd. reported in 193 ITR, 255 in which while construing the provisions of section 43A, the Supreme Court held that once sub-section (1) of section 43A is attracted, its application qua development rebate was excluded by virtue of the provisions of sub-section (2) thereof. It was held that the language of this provision was perfectly clear and it was the requirement of the statute that for the purpose of development rebate any increase or decrease in the actual cost as a consequence of fluctuation in exchange rate should not be taken into account. It was held that in face of the language of section 43A(2) it would not be right to permit the assessee to claim development rebate on the increased cost. Applying the ratio of the decision of the Hon'ble Supreme Court in CIT vs. The Arvind Mills Ltd., 193 ITR, 255, to the present case, we hold that the Tribunal committed an error in coming to the conclusion that notwithstanding the provisions of section 43A(2), the assessee was entitled to development rebate in respect of the increase in the cost of the assets on account of realignment of currency. The question referred to us is therefore, answered in the negative in favour of the revenue and against the assessee. The Reference stands disposed of accordingly with no order as to costs.

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***darji

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