SARABHAI CHEMICALS PVT.LTD. vs. COMMISSIONER OF INCOME TAX

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ITR/119/1988HC GujaratGJHC24013195198805 March 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH2 pages
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What did the High Court hold?

The High Court held that the Tribunal was not justified in law in holding that the guarantee commission of Rs. 23,75,000/- was not allowable as a deduction. The Court found that the issue was squarely covered by the Supreme Court's decision in CIT Vs. Akkamamba (227 ITR 464). In that case, the Supreme Court affirmed that guarantee commission paid to a banker and an insurance company for insuring deferred payment of machinery consideration constitutes revenue expenditure and is an admissible deduction under Section 37 of the Income Tax Act, 1961. Applying this precedent, the High Court concluded that the Tribunal had erred. The question referred to the Court is answered in the negative, in favor of the assessee and against the Revenue. The reference is disposed of accordingly.

What were the facts?

The assessee, Sarabhai Chemicals Pvt. Ltd., is challenging an order of the Income Tax Appellate Tribunal. The Tribunal had held that a guarantee commission of Rs. 23,75,000/- was not allowable as a deduction. This matter was referred to the High Court of Gujarat at Ahmedabad under Section 256(1) of the Income Tax Act, 1961, for its opinion on the legality of the Tribunal's decision. The assessment year(s) are not explicitly stated in the provided text. The procedural history involves a reference from the Tribunal to the High Court.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Tribunal was justified in law in holding that guarantee commission of Rs. 23,75,000/- was not allowable as deduction as claimed for? (Question of law, concerning Section 37 of the Income Tax Act, 1961). Assessee's contention: The assessee claimed the guarantee commission as a deductible revenue expenditure. The judgment does not explicitly detail the assessee's arguments before the High Court, but implies they relied on the principle that such commission is an admissible deduction. Revenue's contention: The Revenue, represented by the Commissioner of Income Tax, presumably argued against the allowability of the guarantee commission, as the Tribunal had initially ruled in their favor. The judgment does not explicitly record the Revenue's arguments before the High Court.

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 119 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?

-------------------------------------------------------------- SARABHAI CHEMICALS PVT.LTD. Versus COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: MR KC PATEL with MR B.D KARIA, Advocates for Petitioner MR MANISH R BHATT with MR MIHIR JOSHI, Advocates for the Respondent

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

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 05/03/98

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

The Income Tax Appellate Tribunal has referred the following question to this Court for opinion, under Section 256(1) of the Income Tax Act, 1961. "Whether on the facts and circumstances of the case the Tribunal was justified in law in holding that guarantee commission of Rs. 23,75,000/- was not allowable as deduction as claimed for?" holding that the guarantee commission of Rs. 23,75,000/- was not allowable as deduction as revenue expenditure. The question referred to us is therefore answered in the negative in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs. ---

*/Mohandas

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