Jyoti Limited V. The Commissioner of Income Tax

ITR/2/1992

AI Insights

The case involves M/S. Jyoti Limited versus the Commissioner of Income Tax, where several questions regarding the allowability of certain expenditures as revenue expenditures under the Income Tax Act, 1961, were referred to the High Court of Gujarat by the Income Tax Appellate Tribunal. The questions pertained to expenditures related to bank guarantee commissions, commissions to the Managing Director, and costs associated with issuing bonus shares and shares, across various assessment years from 1976-77 to 1980-81. The court's decisions were heavily influenced by precedents from the Apex Court and previous rulings of the High Court.

• Counselvise Citation: [2004] 140 COUNSELVISE.COM (IT) 795676 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 14-12-2004
• Assessment Year: misc
• Other Referred Cases: Additional Commissioner of Income Tax Vs. Akkamamba Textiles Ltd., Commissioner of Income Tax Vs. Rohit Mills Ltd., Commissioner of Income Tax Vs. Ambica Mills Ltd., Brooke Bond India Ltd. Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: M R BHATT
• Assessee Lawyers: J P SHAH
• Keywords: Bank guarantee commission; Bonus Shares; Issue of shares; Revenue expenditure; Deferred payment scheme; Commission to Managing Director; Foundry establishment
• Section: 256(1); 40(c)

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 2 of 1992 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO 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 concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- M/S. JYOTI LIMITED Versus THE COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 2 of 1992 MR JP SHAH for Appellant No. 1 MR MR BHATT,SENIOR STANDING COUNSEL FOR MR TANVISH U BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI Date of decision: 14/12/2004 ORAL JUDGEMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has raised and referred the following questions of law under Section 256(1) of the Income Tax Act,1961 ('the Act') at the instance of the assessee. \"For A.Ys :- 1976-77, 1977-78, 1979-80 & 1980-81 : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the bank guarantee commission payment to Industrial Development Bank of India under deferred payment scheme was not allowable as revenue expenditure ? For A.Ys:-1976-77 to 1980-81 :- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that commission paid to Managing Director was a part of remuneration for the purposes of applying limit of Rs.72,000/- laid down u/s.40(c) of the I.T.Act ? For A.Y.1977-78 :- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that expenditure incurred on the issue of bonus shares was not allowable as revenue expenditure ? For A.Y.1979-80 :- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that expenditure incurred on issue of shares was not allowable as a revenue expenditure ? For A.Ys.1980-81 :- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that establishment of a Foundry at Halol was not expansion of the existing business but a new project and that expenditure on it was not allowable as revenue expenditure ?\" 2 Heard Mr.Manish J.Shah, learned Advocate for the applicant-assessee and Mr.M.R.Bhatt, learned Senior Standing Counsel for Mr.Tanvish U.Bhatt on behalf of the respondent-revenue. Mr.Manish J.Shah, learned Advocate for the applicant states under instructions that the assessee is not desirous of pressing the question for assessment year 1980-81 pertaining to expenditure relatable to the Foundry at Halol. In the circumstances, the said question is left unanswered. 3 It is common ground between the parties that remaining four questions stand concluded by decision of the Apex Court and this Court. In the circumstances, it is not necessary to set out the facts and contentions of the parties in detail. 4 The question pertaining to allowability of bank guarantee commission as revenue expenditure for assessment years 1976-77, 1977-78, 1979-80 and 1980-81 stands answered in the negative i.e. in favour of the assessee and against the revenue in light of decision of the Apex Court in case of Additional Commissioner of Income Tax Vs.Akkamamba Textiles Ltd., (1997) 227 ITR 464. 5 The question pertaining to applicability of provision of Section 40(c) of the Act stands answered in the affirmative i.e. against assessee and in favour of the revenue in light of decision of this Court in case of Commissioner of Income Tax Vs. Rohit Mills Ltd. (1996) 219 ITR 228. 6 The question relating to allowability of expenditure incurred on issue of bonus shares as revenue expenditure for assessment year 1977-78 is answered in the affirmative i.e. against assessee and in favour of the revenue in light of decision of this Court in case of Commissioner of Income Tax Vs. Ambica Mills Ltd.,(2000) 244 ITR 742. 7 The question regarding allowability of expenditure incurred on issue of shares for assessment year 1979-80 is answered in the affirmative i.e. against the assessee and in favour of the revenue in light of decision of Apex Court in case of Brooke Bond India Ltd. Vs. Commissioner of Income Tax, (1997) 225 ITR 798. 8 The reference stands disposed of accordingly. There shall be no order as to costs. (D.A.Mehta, J) (H.N.Devani, J) m.m.bhatt "