The Commissioner of IncomeTax V. M/s. Bakelite Hylam Ltd.

RC/4/2004

AI Insights

The case involves a dispute between the Revenue Department and an industry regarding deductions claimed for the maintenance of guest houses and transit houses, and the treatment of a Central Excise Refund for the assessment year 1987-88. The industry had claimed deductions which were initially disallowed by the Assessing Officer but were later allowed by the Commissioner of Income Tax (Appeals). The Department's appeal to the ITAT resulted in a mixed decision, leading to the current reference to the High Court for clarification on specific legal questions regarding the deductions and the tax treatment of the excise refund.

• Counselvise Citation: [2003] 140 COUNSELVISE.COM (IT) 678043 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 30-05-2003
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Coramandel Fertilisers Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Depreciation; Guest House Maintenance; Income Tax; Central Excise Refund; Transit House
• Section: 32; 41(1); 256(1); 37(3); 37(4); 37(5)

Judgement Text

"THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C.No.4 of 2004 ORDER: (Per the Hon’ble Sri Justice L.Narasimha Reddy) This reference, under Section 256(1) of the Income Tax Act, 1961 (for short ‘the Act’), is at the instance of the Revenue. The respondent is an industry, and as part of its activity, it maintains the guest house as well as the transit house. For the assessment year 1987-88, it has claimed deduction on several heads, including the expenditures incurred for maintenance of guest house and transit house. It has also got a favourable order, as regards payment of central excise duties during that year. However, since the amount was not received, the same was not reflected in the returns. The Assessing Officer disallowed the expenditures for maintenance of guest house and transit house, but added the amount of central excise duty, directed for refund. Aggrieved by that, the respondent filed an appeal before the Commissioner of Income Tax (Appeals), Hyderabad. Through order, dated 15.10.1992, the Commissioner allowed deduction of the expenditure incurred for maintenance of guest house and transit house. So far as the amount representing the refund of Central Excise duty is concerned, he directed that the same be added for the subsequent assessment year i.e. 1988-89. Feeling aggrieved by the order passed by the Commissioner, the Department filed I.T.A.No.44 of 1993 before the Hyderabad Bench ‘B’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’). The respondent also filed cross appeal feeling aggrieved by denial of some other relief by the Commissioner. Through a common order, dated 09.05.1996, the Tribunal rejected the plea of the Department on three aspects, referred to above. Therefore, the Department filed R.A.No.528 of 1996 with a request to refer the questions to this Court. Though they sought reference of five questions, the Tribunal passed order, dated 30.05.2003, referring questions 2 to 5, which read as under: 2 “Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that depreciation on transit house and furniture therein is allowable u/s.32 of the I.T.Act, contrary to the provisions of Sec.37(3), (4) & (5) of I.T.Act? 3 Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the expenditure under maintenance and repairs of guest house are allowable contrary to the provisions of Sec.37(3), (4) & (5) of the I.T.Act? 4 Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the disallowance under rule 6-D should be worked out taking all trips on an employee put together in a year, contrary to the decision of the A.P. High Court in the case of M/s. Coromandel Fertilizers Ltd., in R.C.No.88/87 and 119/87 dated 8-8-95? 5 Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the Central Excise Refund of Rs.49,63,671/- not to be taxed u/s.41(1) of the I.T. Act for the asst. year 1987- 88?” Heard Sri J.V. Prasad, learned Standing Counsel for the Department, and Sri K.Vasanth Kumar, learned counsel for the respondent. Question No.2 is in relation to the allowing of depreciation on the furniture that is used in the transit house. This Court in Commissioner of Income Tax v. Coramandel Fertilisers Ltd[1], held that the expenditure incurred for maintenance of transit house qualifies for deduction. On the same analogy, the depreciation on the furniture used in the transit house, qualifies for depreciation. Therefore, we answer the question in favour of the respondent. On the 3rd question, in all fairness, learned counsel for the respondent stated that the law, as it stands now, does not permit the deduction of expenditure incurred for maintenance and repairs of guest houses. Therefore, the question is answered in favour of the Revenue. The 4th question, is answered by this Court in the Coramandel Fertilisers Ltd’s case (supra) against the assessee. Following the same, we answer that question in favour of the Department and against the respondent herein. So far as the last i.e. the 5th question, is concerned, the Commissioner directed that the amount in question be dealt with in the returns for the subsequent year i.e. 1988-89. Once the amount is refunded towards arrears of central excise duty as a result of adjudication, the same deserves to be brought under the purview of the Act. However, the Commissioner took into account, the date of the exact receipt as well as quantum and directed that a sum of Rs.49,63,671/- be assessed for the assessment year 1988-89. In case the respondent has received any further amount during the assessment year and it is not brought under the purview of the tax, the same shall be liable to tax in accordance with the Act. We answer question No.5 accordingly. The reference case is accordingly disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:02.12.2014 GJ [1] (1996) 220 ITR 298 "