Gujarat High Court Judgments — 2002

The High Court held that the Tribunal was correct in its decision. The interpretation of 'exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date' under Section 7(4) of the Wealth Tax Act, 1957, should be pragmatic and reasonable, not pedantic. The term 'used' does not necessitate physical occupation but rather the intention to use the property as a residence and not for income generation. The assessee's intention to keep the house exclusively for residential purposes, even if vacant due to absence, and retaining constructive possession, entitles him to the benefit of Section 7(4). The Court referred to Madras High Court's decision in CIT v. W. Doraisamy and Andhra Pradesh High Court's decision in Commissioner of Wealth Tax v. B.M. Bhandari, which supported a pragmatic approach to exclusive residential use. The question referred was answered in the affirmative, in favour of the assessee.

On the first issue, the High Court held that the Tribunal was right in including the cost of plant and machinery under erection and the cost of building under construction in the capital base for Section 80J deduction. This was based on the High Court's own decisions in CIT vs. Cibatul Limited and CIT vs. Gujarat State Fertiliser Co.Ltd., which were approved by the Supreme Court in CIT vs. Karnataka Power Corporation. For the second issue, the High Court held that the Tribunal was wrong in allowing investment allowance on amounts paid due to exchange rate fluctuations. Relying on CIT vs. Windsor Foods Ltd., the court stated that investment allowance, once worked out, cannot be reduced by subsequent fluctuations. On the third issue, the High Court held that the exchange loss of Rs. 28,79,813 was not allowable as a deduction. Following CIT vs. Windsor Foods Ltd. and the Supreme Court's decision in Sutlej Cotton Mills Ltd., the court determined that the additional liability due to exchange rate fluctuation was of a capital nature and not revenue expenditure. The reference was disposed of accordingly.

The High Court held that the Roza Estate Trust is a Public Charitable Trust and that the disputed immovable properties belong to the Roza Estate Trust and not to the assessee, Saiyed Musamiya. The Court referred to its own judgment in ITR No. 135/1988, delivered on 11-4-2002, which had already accepted the finding of the Income-Tax Tribunal that the Roza Trust was a Public Trust and the properties in dispute were its properties. For these reasons, the High Court concluded that the Tribunal was right in holding that the Roza Trust was entitled to exemption under Section 5(1)(i) of the Wealth-Tax Act and that the properties belonged to the Trust. Both questions were answered in the affirmative in favour of the assessee and against the revenue. The references were disposed of accordingly.

The High Court held that the Tribunal was correct in its findings. Firstly, it affirmed that the Roza Trust is a wakf and the properties at Rasulabad, Vasna, Isanpur, and Sarsa are indeed wakf properties belonging to the Trust. This finding was based on evidence and the Tribunal's assessment, warranting no interference. Secondly, the Court agreed that the exemption under Section 11 of the Income Tax Act, 1961, is available to the Roza Trust, provided the statutory conditions are fulfilled. Thirdly, the Tribunal's conclusion that the actual expenditure on the maintenance of the Sajjadanashin and his family, not exceeding Rs. 30,000 per year, would not be included in the Roza Trust's income was upheld. The Court reasoned that such expenditure is for the head of the institution and falls within the definition of 'wakf' under the Wakf Act, 1954, as 'Madad-E-Maash'. However, this amount of Rs. 30,000 would be taxable in the hands of the Sajjadanashin. Finally, the Court confirmed that the previous Bombay High Court judgment did not operate as res judicata, allowing the assessee to take the stand that the properties belonged to the Roza Trust. All referred questions were answered in the affirmative in favour of the assessee.

The High Court held that the Tribunal committed an error in the exercise of its jurisdiction by failing to consider the detailed reasoning provided by the CIT(Appeals) in his order. The Tribunal's primary ground for setting aside the CIT(Appeals)'s order was that the latter had applied 'common sense' without substantiating the addition of Rs. 1,50,000/-. The Court noted that the Tribunal itself sustained the addition without adequate reasoning, disregarding the evidence and analysis presented by the CIT(Appeals). Citing the Supreme Court in Omar Salay Mohamed Sait and the Gujarat High Court in Rajesh Babubhai Damania, the Court emphasized the duty of the Tribunal to consider all evidence and the reasoning of lower appellate authorities. Consequently, the impugned order of the Tribunal was set aside, and the matter was remanded to the Tribunal for reconsideration on merits, directing it to consider the Revenue's appeal expeditiously.

The High Court held that the Tribunal was not right in denying depreciation at 40% on the crane mounted on a motor truck. The Court reasoned that a mobile crane mounted on a truck constitutes a single unit known as a 'truck crane,' which is a well-known type of machinery adapted for use on roads. The truck is specially constructed to carry the crane. The Court took judicial notice of what a crane is and that it is an integral part of a truck-crane registered as a heavy motor vehicle, stating that courts and tribunals are not expected to be ignorant of such common facts. The Court found that the mobile crane, registered as a heavy motor vehicle, clearly falls within the expression 'motor lorries' (motor trucks) in Entry III E(1A) of Appendix 1, as it was used in the business of running the crane on hire. The question referred to the High Court was answered in the negative, in favour of the assessee and against the Revenue. The reference was disposed of with no order as to costs. No issue was expressly left undecided.

The High Court held on Question 1 that the Tribunal was not right in upholding the claim for investment allowance on compound walls and fencing, following its own decision in CIT vs. Gujarat State Fertilizer Co. Ltd. (219 ITR 550), which held that buildings like compound walls are not eligible for development rebate or investment allowance as they are not plant. Question 2 was not fully recorded in the provided text, but it appears the Tribunal had allowed guest house expenses. The Court noted an earlier decision in the assessee's own case where guest house expenses were upheld. Question 3 was not fully recorded. For Question 4, the Court implicitly agreed with the Revenue by answering Question 1 negatively, suggesting depreciation on fencing at the rate of plant was incorrect. For Question 5, the Court held the assessee was entitled to development rebate on the affluent system and instruments, citing its own decision in 219 ITR 550 for the affluent system and a previous year's decision for instruments. However, it denied development rebate on telephone equipment, following CIT vs. Gujarat State Fertilizer Co. Ltd. (203 ITR 526). For Question 6, the Court held the assessee was entitled to depreciation on the lunch room, extension of the canteen, and partition wall, finding these items covered by Section 32(1)(iv) of the Act.

The High Court held that the Tribunal was right in confirming the view taken by the Commissioner of Income-tax (Appeals) regarding the computation of share value under Rule 1D of the Wealth-Tax Rules, 1967. The Court's decision was guided by the Supreme Court's interpretation in Bharat Hari Singhania and others Vs. Commissioner of Wealth-Tax and others (207 ITR 1). The Supreme Court clarified that sub-clause (a) of clause (i) and sub-clause (e) of clause (ii) of Explanation II to Rule 1D operate in distinct fields. While clause (i)(a) removes advance tax paid from the list of assets for Rule 1D purposes, clause (ii)(e) addresses excess provisions for taxation. If advance tax paid is also shown as a liability, it must be deleted from liabilities. The Supreme Court illustrated that only the remaining payable tax should be treated as a liability on the valuation date, ensuring the assessee gets the benefit of the entire tax liability, but only the outstanding portion is considered a liability on the balance sheet for Rule 1D. The High Court answered the referred question in the affirmative, in favour of the assessee and against the Revenue.

The High Court held that the Income Tax Appellate Tribunal (ITAT) had erred in deleting the interest income for assessment years 1981-82 and 1982-83. The Tribunal's reliance on its earlier order for assessment years 1979-80 and 1980-81 was found to be flawed. The High Court pointed out that for AY 1980-81, the deletion was based on a revised agreement where interest accrued from July 1, 1979. However, the ITO had correctly observed that even under this modified agreement, interest was chargeable on an accrued basis after July 1, 1979. This crucial aspect was overlooked by the ITAT. Therefore, the High Court concluded that the deletion of Rs. 4,726 for AY 1981-82 and Rs. 3,544 for AY 1982-83, representing interest on deferred sale consideration, was not justified. The question of law was answered in the negative, in favour of the Revenue and against the assessee.

The High Court held that the Tribunal was correct in its conclusion. The Court interpreted Section 80J(1) of the Income Tax Act, 1961, which states that where the gross total income of an assessee includes profits and gains from a qualifying industrial undertaking, a deduction shall be allowed in computing the total income. The Court found that the language of the section clearly indicates that the relief is to be allowed from the total income of the assessee and cannot be confined only to the income derived from the new units. Therefore, the question referred to the Court was answered in the affirmative, in favour of the assessee and against the Revenue. The references were disposed of accordingly.

The High Court declined to answer the first part of Question No. 1, concerning whether Ahmedabad Mfg. & Calico Prtg. Co. Ltd. is a concern where persons under Section 13(3) have substantial interest. This was due to a lack of specific material and contentions before the court, and prior decisions in related cases (CIT vs. Insaniyat Trust, Sarabhai Foundation, and the assessee's own earlier reference ITR No. 142/85) not fully addressing this aspect. The court noted that in the earlier reference, this question was not pressed due to small tax effect. For Question No. 2, the court held that Section 13(3) was not applicable to the Rs. 68,942 diverted to Smt. Saraladevi Sarabhai or M/s. Karamchand Premchand Pvt. Ltd., as the shares were donated subject to the condition of discharging this liability, meaning the assessee did not voluntarily divert its funds. Therefore, exemption under Section 11 could not be denied. For Question No. 3, the court held it to be consequential to Question No. 2; if income is exempt under Section 11, expenditure for trust objects is deductible. The court answered Question No. 3 in the affirmative. The dividend income from shares donated or received as bonus was held exempt, while dividend from purchased shares was subject to Section 13(2)(h). The court left it to the Tribunal to ascertain the break-up of dividend amounts.

The High Court answered the questions as follows: For AY 1979-80, questions 1, 2, and 3 raised by the assessee were answered in the affirmative, in favour of the Revenue and against the assessee. This implies the Court found that the interest was indeed taxable on an accrual basis, accrued day-to-day, and giving it up was not justified. For AY 1980-81, questions 1 and 2 raised by the Revenue were answered against the Revenue and in favour of the assessee, meaning no interest accrued in that year as the accrual date was shifted post the accounting year. The question regarding the levy of interest under Section 215 for AY 1979-80 was answered in favour of the Revenue and against the assessee. However, the penalty under Section 273(2)(a) for AY 1979-80 was held to be unjustified, answering the question in the negative, in favour of the assessee. Similarly, the penalty under Section 271(1)(c) for AY 1979-80 was also held to be unjustified, answering the question in the negative, in favour of the assessee. The reasoning for the penalty being unjustified was that all relevant particulars were disclosed, and the claim that interest had not accrued was based on a substitution of terms, which the ITO could still compute interest on.

The High Court held as follows: On Question 1, it reversed the Tribunal's decision, finding that the guarantee commission of Rs. 50,345 was revenue expenditure. The Court relied on the Supreme Court's decisions in Additional CIT Vs. Akkamamba Textile Mills Ltd. (1997) and CIT Vs. Sivakami Mills Ltd. (1997), and its own decision in Ambica Mills Ltd. (1999), stating that the Tribunal's reliance on CIT Vs. Vallabh Glass Works Ltd. (1982) was not justified. On Question 2, the Court affirmed the Tribunal's disallowance of the exchange loss of Rs. 26,924. It followed the Supreme Court's decision in CIT Vs. Tata Iron & Steel Co. Ltd. (1998), holding that exchange fluctuations at the time of loan repayment do not alter the cost of an asset acquired for business. On Question 3, the Court upheld the Tribunal's confirmation of interest levied under Section 215, following a related decision of the High Court rendered on the same day. On Question 4, the Court held that the Tribunal ought to have set aside the Income Tax Officer's order for levying interest under Section 216 without recording the requisite findings and reasons, and remanded the matter to the Income Tax Officer for a fresh order as contemplated by the section, relying on Shree Digvijay Woollen Mills Ltd. Vs. Commissioner of Income Tax (1993).

The High Court answered the referred question in the affirmative, in favour of the assessee. The Court found that the Tribunal was not right in law in holding that the assessee was not entitled to claim depreciation on the enhanced value of the assets. The Court noted that the Income Tax Officer and the Tribunal failed to dislodge the valuation report of the registered valuer by bringing adequate material on record. The Court emphasized that to invoke Explanation 3 to Section 43(1), the authority must determine the 'actual cost' to the assessee, and if substituting the written-down value, sufficient evidence must be placed on record to dislodge the registered valuer's report. The Court also observed that there was no finding that the main purpose of the transfer was to claim depreciation on enhanced cost. The figures of carried forward losses and depreciation cited by the Tribunal were considered effects, not the purpose of the transaction. The Court explicitly stated it did not find it necessary to go into the aspect of 'transfer' given its view on Explanation 3 to Section 43(1).

The High Court allowed the petitions and quashed the impugned notices dated January 9, 2001, issued under Section 148 of the Income Tax Act, 1961, for all the assessment years. The Court reasoned that the revenue had accepted the Tribunal's order for AY 1988-89 to 1990-91, and the High Court itself had dismissed the revenue's appeals for AY 1991-92 and 1992-93, thereby confirming the assessee's entitlement to exemption under Section 11. The issuance of fresh Section 148 notices was considered an attempt to bypass these judicial decisions and amounted to an abuse of the process of law. The Court relied on the principle that where an authority acts without jurisdiction, the High Court can intervene even if alternative remedies exist, citing the Supreme Court's judgment in Calcutta Discount Company Ltd. vs. Income Tax Officer. The Court also expressed dissatisfaction with the manner in which the reassessment proceedings were conducted, emphasizing that taxing authorities must act fairly and not in a partisan manner. Consequently, all subsequent proceedings and assessment orders dated October 23, 2001, were also quashed, and the respondent was directed to refund taxes collected.

The High Court held that the assessee was entitled in law to the relief under Section 80U of the Income Tax Act, 1961. The court noted that there was no dispute that the assessee suffered from deafness, to the extent that he could not hear from a distance of 2-3 feet even with a hearing aid. The High Court followed its own ratio in CIT v. Bhagwatiprasad P. Parikh (239 ITR 645), which stated that substantial income alone cannot be the criterion for determining if a disease or disability reduces a person's capacity for gainful employment. Therefore, the assessee's deafness qualified him for the deduction. The question referred to the court was answered in the affirmative in favour of the assessee. The reference was disposed of accordingly.