THE DY. C.I.T. vs. ATUL PRODUCTS LTD

O/TAXAP/382/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 382 of 2000 With TAX APPEAL NO. 77 of 2000

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE DY. C.I.T.....Appellant(s) Versus ATUL PRODUCTS LTD....Opponent(s) ================================================================ Appearance: MR M.R. BHATT SR. STANDING COUNSEL WITH MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 Page 1 of 8

O/TAXAP/382/2000 JUDGMENT MR MANISH J SHAH WITH MR. JP SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 11/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. In both these appeals, the assessee is the same and the questions of law are common. Hence, they are decided by this common judgment. 2. In Tax Appeal No.382/2000 filed u/s.260A of the Income Tax Act, 1961, challenge is to the judgment and order dated 07.04.2000 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench in ITA No.4603/AHD/1994 whereas, in Tax Appeal No.77/2000, challenge is to the judgment and order dated 24.12.1999 passed by the Tribunal in ITA No.1285/AHD/1994. For the purpose of narration of facts, T.A. No.382/2000 is taken as the lead matter. 3. The facts in brief are that the assessee is a domestic

company in

which public

are substantially interested within the meaning of Section 2(18) of the At. The assessee is engaged Page 2 of 8

O/TAXAP/382/2000 JUDGMENT in the business of manufacturer and sale of various Dyes, Chemicals, etc. It also manufactures certain items for industries engaged in explosives and agro-chemicals. 4. The assessee-company filed its return of income on 30.12.1991 for the A.Y. 1991-92 declaring total income at Rs. “Nil”. Assessment scrutiny was undertaken and ultimately, the Assessing Officer passed the order dated 18.03.1994 u/s.143(3) of the Act declaring the total income at Rs.3,85,70,290/-. Aggrieved by the said order, the assessee filed appeal before the CIT(A). Vide order dated 29.07.1994, the CIT(A) partly allowed the appeal filed by the assessee. Being dissatisfied with the said order, the assessee filed second appeal before the Tribunal vide ITA No.4603/AHD/1994. After hearing both the sides, the Tribunal partly allowed the appeal, vide impugned judgment and order dated 07.04.2000. Hence, this appeal. 5. Tax Appeal No.382/2000 was admitted in respect of the following three substantial questions of law; “(A) Whether when the liability to pay refund amount to the excise authorities had not arisen meaning thereby liability to pay interest had not accrued or arisen during the previous year, and no provision was also made Page 3 of 8

O/TAXAP/382/2000 JUDGMENT by the assessee in its books of accounts, the Tribunal was justified in deleting the disallowance of Rs.9,88,740/- on account of accrued interest liability? (B) Whether when there is a specific provision with regard to expenses incurred for guest house u/s.37(4) the Tribunal was justified in ignoring the same depsite clear provision of section 30 and thereby allowing repair expenses and depreciation in respect of guest house maintained by the assessee? (C) Whether misc. income amounting to Rs.577.48 Lacs and processing charges amounting to Rs.171.37 lacs, being part and parcel of assessee’s business income and required to be included in the total turnover, the Tribunal was justified in excluding the same for the purposes of computation of deduction u/s.80HHC of the Act?” 6. Tax Appeal No.77/2000 was admitted in respect of the following substantial question of law; “Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of interest of Rs.9,88,740/- being alleged accruing liability of interest in pursuance to the order of this Hon’ble Court in respect of the excess fund received by the assessee company?” 7. We have heard learned counsel for both the sides. Insofar as question no.1 raised in T.A. No.382/2000, which is similar to the question of law formulated in T.A. No.77/2000, is concerned, Page 4 of 8

O/TAXAP/382/2000 JUDGMENT the issue is already concluded by a decision of this Court in the case of Commissioner of Income- tax v. Dinesh Mills Ltd., [2008] 302 ITR 164 (Guj) wherein, it is held that the interest could not be treated as a statutory liability as the principal amount itself was a decretal amount and there was no question of the said amount having the characteristic of duty under the 1944 Act and therefore, Section 43B was not applicable and accordingly, the interest was deductible. In view of the same, question no.1 formulated in both the appeals is answered in the affirmative in favour of the assessee and against the Revenue. Learned counsel for the Revenue was not in a position to controvert the proposition of law laid down in the above referred-case. 8. Insofar as question no.2 is concerned, the same is also concluded by a decision of the Apex Court in the Britannia Industries Ltd. v. Commissioner of Income-tax and another, [2005] 278 ITR 546 (SC) wherein, it has been held that while the expression “premises and buildings” in sections 30 and 32 of the Income-tax Act, 1961 and the expression “residential accommodation including any accommodation in the nature of guest house” in sub-sections (3), (4) and (5) of section 37 can be similarly interpreted, a distinction has been sought to be introduced for Page 5 of 8

O/TAXAP/382/2000 JUDGMENT the purpose of section 37 by specifying the nature of the building to be a guest house. The intention of the Legislature is clear and unambiguous : the intention was to excluded from deduction the expenses towards rents, repairs and also maintainenance of premises / accommodation used for the purpose of a guest house of the nature indicated in sub-section (4) of section- 37. If the Legislature had intended that deduction would be allowable in respect of all types of buildings / accommodation used for the purpose of the business or profession, then the Legislature would not have felt the need to amend the provisions of section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in section 37(5) and the provisions of sections 31 and 32 would have been sufficient for that purpose. In view of the principle rendered in the above decision, the question no.2 raised in T.A. No.382/2000 is answered in favour of the Revenue and against the assessee. Learned counsel for the assessee was not in a position to controvert the proposition of law laid down in the above referred-case. 9. Insofar as question no.3 in T.A. No.382/2000 is concerned, the same is also concluded by a decision of the Apex Court in the case of Commissioner of Income-tax v. K. Ravindranathan Page 6 of 8

O/TAXAP/382/2000 JUDGMENT Nair, [2007] 295 ITR 228 (SC) wherein, it has been held that in arriving at the profit earned from export of self-manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after the adjustment there was a positive profit, the assessee would be entitled to the deduction under section 80HHC(1) and if there was a loss, the assessee would not be entitled to any deduction. In view of the above, the question no.3 is answered in the affirmative in favour of the Revenue and against the assessee. Learned counsel for the assessee was not in a position to controvert the proposition of law laid down in the above referred-case. 10. Since we are concurring with the view taken in the above decisions, we are not assigning elaborate reasons while disposing off these appeals. It is, however, observed that the assessee shall be at liberty to raise the contention regarding netting-off while the Assessing Officer gives effect of this judgment as far as question no.3 is concerned. 11. Accordingly, question no.1 is answered in the affirmative in favour of the assessee and against the Revenue since the Tribunal has not committed any error on the said issue. The question no.2 is answered in the negative in favour of the Revenue and against the Page 7 of 8

O/TAXAP/382/2000 JUDGMENT assessee since the Tribunal was not right; whereas, question no.3 is answered in the affirmative in favour of the Revenue and against the assessee and the Assessing Officer will consider the question of netting-off that may be raised by the assessee. The appeal is partly allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 8 of 8