COMMISSIONER OF INCOME-TAX vs. BHARAT VIJAY MILLS LTD

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ITR/97/1988HC GujaratGJHC24013173198824 March 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 was not right in law in directing the ITO to allow the payment of Rs. 24,000 made by the assessee in respect of deferred annuity premium pertaining to the two Managing Directors under Section 37 of the Income-tax Act, 1961. The Court followed its own decision in Gujarat Steel Tubes Ltd. vs. CIT (supra). The reasoning was that the premium paid for deferred annuity policies by the assessee company on the lives of its Managing Directors was not an allowable expenditure under Section 37 of the Act, as it was considered a form of investment. 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 accordingly.

What were the facts?

The assessee, Bharat Vijay Mills Ltd., a textile company, claimed a deduction of Rs. 24,000 for deferred annuity premiums paid for its two Managing Directors, Shri D.B. Patel and Shri A.P. Patel, for the assessment year 1982-83. The Income Tax Officer (ITO) disallowed this claim, viewing the payment as an investment rather than an admissible expenditure under Section 37 of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) allowed the deduction, relying on a previous Tribunal order for the assessee's own case for assessment year 1980-81. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision. The Revenue has filed a reference to the High Court.

What were the issues?

1. Whether the Tribunal is right in law in directing the ITO to allow the payment of Rs. 24,000 made by the assessee in respect of deferred annuity premium pertaining to two Managing Directors under section 37 of the Income-tax Act, 1961 (mixed question of law and fact). Assessee's Contention: The assessee claimed the deferred annuity premium as a deductible business expenditure. The CIT(A) and the ITAT had allowed this deduction, following a precedent in the assessee's own case for AY 1980-81. Revenue's Contention: The Revenue argued that the payment of deferred annuity policy was merely a form of investment and not an admissible expenditure under Section 37. The Revenue relied on the High Court's decision in Gujarat Steel Tubes Ltd. vs. CIT, reported in 210 ITR, 358, which held that such premiums were not allowable under Section 37.

Which sections of the Income-tax Act were involved?

Section 37,Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 97 of 1988

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?

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus BHARAT VIJAY MILLS LTD -------------------------------------------------------------- Appearance: Mr.Pranav G Desai for MR MANISH R BHATT for Petitioner NOTICE SERVED for the Respondent.

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

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 24/03/98

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, 1976. "Whether the Tribunal is right in law in directing the ITO to allow the payment of Rs. 24,000/- made by the assessee in respect of the deferred annuity premium pertaining to two Managing Directors under section 37 of the Income-tax Act, 1961 ?"

2.

The relevant assessment year is 1982-83. The assessee, a resident industrial company engaged in textile industry and maintaining its accounts on mercantile system, with calender year as its previous year, claimed the deduction of Rs. 24,000/- on account of deferred annuity premium purchased in respect of its two Managing Directors Shri D B Patel and Shri A.P. Patel in the year under consideration. The ITO disallowed the assessee's claim on the ground that the payment of deferred annuity policy was merely a form of investment like setting apart certain funds for future use and as such the expenditure is not admissible under section 37 of the Act.

3.

On appeal, however, the CIT (Appeals) following the Tribunal's order in the assessee's own case for the assessment year 1980-81, accepted the assessee's directing the ITO to allow payment of Rs. 24,000/- made by the assessee in respect of deffered annuity premium pertaining to two Managing Directors under section 37 of the Act and the question referred to us is 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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