Gujarat High Court Judgments — 2000

The High Court did not decide the merits of the questions. Instead, it framed the two questions of law as presented by the parties. The Court allowed the application filed by the Commissioner of Income Tax. The operative direction was to instruct the Income Tax Appellate Tribunal to submit a statement of facts and then refer these framed questions to the High Court for its opinion. The High Court made the rule absolute, meaning the application was granted, but with no order as to costs. The judgment does not record any finding on the substance of the two questions, nor does it provide reasoning or ratio decidendi for those questions, as they were not adjudicated upon.

The High Court of Gujarat held that the petition merits rejection. The Court observed that the authority had assigned reasons in the impugned order under Section 241 of the Income Tax Act, 1961, for withholding the refund until the decision of the appeal pending before the Income Tax Appellate Tribunal. This was considered a distinguishing factor from a previous order that had been challenged. The Court also noted that the petition was filed in 1995 and should be at an advanced stage. Therefore, considering the facts, circumstances, grounds stated in the impugned order, and the purport of Section 241, the petition was rejected. The Court also directed the ITAT to hear the pending appeal expeditiously so that the refund could be finalized early, and it was open for the petitioner to move for early hearing before the Tribunal.

The High Court held that the petition under Article 226 of the Constitution of India should not be entertained. The court found merit in the preliminary objection raised by the revenue. It reasoned that in the absence of any peculiar facts or special circumstances, the assessee should be relegated to the statutory remedy available before the Income Tax Appellate Tribunal. The court distinguished this case from another matter heard on the same day where a departure from the normal practice was made due to significant factual scenarios, procedural lapses, and non-application of mind, coupled with the fact that the matter had been admitted long before. In the present case, considering the facts and circumstances and the tenor of the impugned order, the court found no justifiable ground to exercise its extraordinary powers under Article 226. Therefore, the petition was dismissed on the preliminary ground.

The High Court did not decide the substantive questions of law. Instead, it directed the Income Tax Appellate Tribunal to prepare a statement of facts and refer the same to the High Court for its opinion. The Court found that the two questions raised were required to be considered for its opinion. Therefore, the Tribunal was instructed to compile the relevant facts and present them to the High Court. The High Court made the rule absolute in each application, signifying that the applications for reference were granted, but the ultimate decision on the taxability of the interest on debentures was deferred pending the reference and the High Court's subsequent adjudication. No specific finding was reached on the merits of the questions posed.

The High Court held that the answer to both questions referred by the Tribunal should be in the affirmative, in favour of the assessee and against the revenue. The Court agreed with the Tribunal's view that if relief is permissible under Section 80J and the assessee had no taxable income in the initial years to claim it, the claim can be carried forward and allowed in a subsequent year when profits are available. The Court found support for this view in the Madras High Court's decision in CIT v. Blue Mountain Ceramics Ltd., which held that it is sufficient if the claim is made in the year in which there is a profit. Therefore, the assessee was entitled to carry forward the claim of relief under Section 80J. The Court did not expressly leave any issue undecided.

The High Court held that the Tribunal was not right in its conclusion regarding the firm's registration. Question 1 was decided in the negative, in favour of the Revenue and against the assessee. The reasoning was that the Tribunal erred in holding the Laxmichand Hirjibhai decision inapplicable. The court found that the validity of the partnership deed, which was fundamental, was indeed an issue. The fact that Gopalbhai was a minor until August 8, 1978, and the deed was given retrospective effect from November 12, 1977, meant that a valid partnership, capable of sharing losses, could not have been in existence for the entire period. The court disagreed with the Tribunal's view that the absence of actual losses made the deed valid. Question 2, being corollary to Question 1, was also decided in the negative, in favour of the Revenue and against the assessee. Question 3 was decided in the affirmative, in favour of the Revenue and against the assessee, implying the Tribunal was wrong in its finding regarding the applicability of the Laxmichand Hirjibhai case.

The High Court disposed of the reference. Regarding Question 1, the assessee's counsel did not press it, so it was not decided on merits. For Question 2, the Court, relying on the Supreme Court decision in Arvind Mills v. C.I.T., 197 ITR 422, held that the betterment charges were of a capital nature and answered the question in the affirmative, against the assessee and in favour of the Revenue. For Question 3, the Court referred to its own earlier decision in C.I.T. v. Kaira District Coop. Milk Producers Union, 209 ITR 898, which also involved the same assessee, and held that the contributions under Section 69 of the Gujarat Rajya Co-op. Societies Act were not deductible. The question was answered in the negative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly, with no order as to costs.

The High Court answered the questions referred by the Tribunal. Regarding Question 1, the Court held in the affirmative, against the assessee and in favour of the Revenue, stating that the assessee was obliged to disclose the factum of his marriage with his brother's widow, as the minors became step-children. The Court found the Assessing Officer justified in reopening the assessment under Section 147(a) read with Section 148 for assessment years 1976-77, 1977-78, and 1978-79, due to the non-disclosure of the marriage. The Court emphasized that for interpreting a Central tax statute, principles of personal law are not required to be considered, and the amended definition of 'child' including 'step child' in Section 2(15A) was significant. For Question 2, the Court held in the negative, against the assessee and in favour of the Revenue, implying the minors were considered step-children. For Question 3, the Court also held in the negative, in favour of the Revenue and against the assessee, meaning the minors' share income could be included in the assessee's income under Section 64.

The High Court held that the Tribunal was right in law in concluding that minors admitted to the benefits of a partnership are entitled to a share in the goodwill, quota rights, selling agency rights, and other business connections. The Court's reasoning was based on a prior decision of the same High Court in Income Tax Reference No. 52/84, which dealt with a similar question between the same parties for the assessment year 1977-78. The Court found no material difference in the facts of the present case to warrant a departure from its earlier view. Therefore, the Court answered the referred question against the Revenue and in favour of the assessee. The reference was disposed of accordingly. No issue was expressly left undecided.

The Gujarat High Court, after considering the facts and the Supreme Court's decision in Modi Industries Ltd. v/s CTI, held that the ratio propounded in the Modi Industries case squarely applies to the present facts. Consequently, the High Court decided the reference in favour of the Revenue and against the assessee for the Assessment Year 1977-78. The Court did not explicitly detail its reasoning on each of the two referred questions individually but indicated that the Supreme Court's ruling on the scope of 'regular assessment' for interest under Section 214 was determinative. The operative direction was to dispose of the reference accordingly, meaning the ITAT's view that interest was payable up to the rectification order was overturned.

The High Court held that the Income Tax Appellate Tribunal was correct in its conclusion that the assessee company was an Industrial Company and thus not liable for additional tax under Section 104 of the Income-tax Act. The Court's reasoning was based on an earlier identical decision of the same Court in the case of Commissioner of Income Tax vs. Ashwinkumar Gordhanbhai & Bros., 212 ITR 614, where a similar question was answered in favour of the assessee. In the absence of any new material requiring a departure from the established precedent, the Court found it unnecessary to delve into the meticulous factual aspects of the present case. The reference was answered in the affirmative, in favour of the assessee and against the Revenue, and disposed of accordingly.

The High Court of Gujarat, in its oral judgment, noted that the assessee, despite being served with notice, did not appear to assist the Court. The Court expressed helplessness in dealing with the reference due to the absence of the assessee, attributing it to potential apathy or indifference. Consequently, the Court decided that the reference deserved rejection in default. The outcome was that the reference stood disposed of as not answered, meaning the High Court did not provide an opinion on the substantial question of law. No finding was reached on the entitlement to carry forward and set off unabsorbed depreciation.

The High Court of Gujarat, in its oral judgment, noted that the assessee had not appeared despite being served with notice. The Court observed that the assessee might not be interested in obtaining a judicial opinion on the referred question. Given the absence of the assessee and their inability to provide assistance, coupled with the significant age of the reference (approximately 16 years), the Court expressed helplessness in dealing with the matter. Consequently, the Court decided that the reference deserved rejection in default. The reference was disposed of as not answered, meaning the Court did not provide an opinion on the merits of the question referred.

The High Court of Gujarat, comprising Mr. Justice J.N. Bhatt and Mr. Justice C.K. Buch, decided to reject the reference in default. The Court noted that despite notice being served, the assessee chose not to appear and assist the Court. The Court expressed helplessness in dealing with the old reference (16 years old) in the absence of the assessee's appearance and assistance, attributing it to apathy or indifference. Consequently, the reference was disposed of as not answered. The Court did not provide any finding on the merits of the questions referred, as the assessee's absence prevented any substantive deliberation. Therefore, no ratio decidendi or operative directions were issued on the substance of the dispute.

The High Court noted that the reference was very old, dating back approximately 16 years. Despite notice being served on the assessee, no one appeared on its behalf to assist the Court. The Court expressed helplessness in dealing with the reference due to the absence of the assessee's appearance and assistance, attributing it to potential apathy or indifference. Consequently, the High Court decided that the reference deserved rejection in default. The reference was disposed of as not answered. No decision was made on the merits of the question of law referred.

The High Court answered the referred question in the affirmative, against the Revenue and in favour of the assessee. The Court noted that the Revenue itself candidly drew attention to the Supreme Court decision in Commissioner of Income-tax v. P.J. Chemicals Limited, 210 ITR 230. This Supreme Court decision had dealt with an identical question concerning the amount of subsidy and had approved the view of the Gujarat High Court in CIT v. Grace Papers Industries Pvt. Ltd., 183 ITR 591. Therefore, the High Court concluded that the question referred to it was squarely covered by the Supreme Court's decision. The reference was disposed of accordingly, with no order as to costs. The principle established is that government subsidies received for acquiring machinery do not reduce the actual cost for the purpose of calculating investment allowance and depreciation under the Income Tax Act, 1961, as per the Supreme Court's ruling.