PRINCIPAL COMMISSIONER OF INCOME TAX 2 V. GUJARAT STATE FINANCIAL SERVICES LTD

TAXAP/1251/2018

AI Insights

The case revolves around the dispute concerning the deductibility of Rs. 82,74,452 spent by Gujarat State Financial Services Ltd. on renovating the Finance Department of the Government of Gujarat for the Assessment Year 2009-2010. The Assessing Officer initially disallowed the deduction, questioning its relevance to the business purposes of the assessee, which is a 100% government-owned company involved in providing financial assistance to government enterprises. The CIT (A) reversed this decision, and the Tribunal upheld the CIT (A)'s decision, leading to the Revenue's appeal to the High Court. The High Court, after considering the submissions and the nature of the assessee's business operations, dismissed the appeal, agreeing that the expenditure was incurred out of commercial expediency and was thus allowable as a business expense.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 727897 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 15-10-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: J P SHAH; MANISH SHAH
• Assessee Lawyers: MAUNA BHATT
• Keywords: Business expenditure; Financial Assistance; Government company; Modernization; Renovation
• Section: 37

Judgement Text

"C/TAXAP/1251/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL No. 1251 of 2018 With R/TAX APPEAL No. 1254 of 2018 ============================================================= PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus GUJARAT STATE FINANCIAL SERVICES LTD ============================================================= Appearance : Mrs MAUNA M BHATT, Advocate for the PETITIONER(s) No. 1 Mr JP SHAH, Sr Advocate with Mr. MANISH J SHAH, Advocate for the RESPONDENT(s) No. 1 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 15th October 2018 ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) Revenue is in appeal against the common judgment of the Income Tax Appellate Tribunal, Ahmedabad [“Tribunal” for short] dated 6th April 2018, raising the following question for our consideration : “Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT [A] deleting the addition made on account of disallowance of RS. 82,74,452/= on account of expenses incurred other than for business purposes ?” Page 1 of 4 C/TAXAP/1251/2018 ORDER In these two appeals, since the facts are common, we may notice the same from Tax Appeal No. 1254 of 2018. The respondent­assessee is Gujarat State Financial Services Limited. For the Assessment Year 2009­2010, the return filed by the assessee contained expenditure of a sum of Rs. 82,74,452/= for renovation of Finance Department of Government of Gujarat. The Assessing Officer objected to the assessee’s claim of deduction of such amount on the ground that the expenditure cannot be stated to be incurred for the purpose of assessee’s business. Before the Assessing Officer, the assessee raised detailed contentions pointing out that the amount was spent on modernization of the Finance Department to give it a corporate image. The assessee is a 100% Government Company and is engaged in the business of providing financial assistance to the Government of Gujarat Enterprises. All Government Corporations work under the supervision and control of Finance Department of the Government of Gujarat. The Finance Department had directed all the State Government Corporations to park their surplus funds with the assessee. The assessee thus receives fund for the financial activities Page 2 of 4 C/TAXAP/1251/2018 ORDER only because of intervention of the Finance Department of the Government. The company generates net profit out of its investments. This would not have been possible but for the active support of the Finance Department. It was also pointed out that the Managing Director, Joint Director, Director & Vice President operate from the Finance Department. The Board meetings, Committee meetings and business meetings are held in the Finance Department. It was, therefore, contended that the expenditure for modernization and renovation of the Finance Department was expenditure driven by business expediency. The Assessing Officer did not accept the view point of the assessee and disallowed the claim of such expenditure. The assessee therefore approached the CIT [A]. The CIT [A], by a detailed order, allowed such appeal accepting the contention that the expenditure was in the nature of business expenditure of revenue kind. In further appeal, the Tribunal dismissed Revenue’s appeal, making the following observations :­ “29. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the entire business of the assessee comes from the Finance Department of the Government of Gujarat. It is also not in dispute that the MD., Joint Page 3 of 4 C/TAXAP/1251/2018 ORDER MD and the Vice President of the assessee occupy office in the premises of the Finance Department of the Government of Gujarat. In our considered opinion, the expenditure on account of renovation and modernization of the Finance Department building was incurred by the assessee on account of commercial expediency and is therefore allowable under Section 37 of the Act which has been rightly directed to be allowed by the First Appellate Authority. Therefore, no interference is called for. Ground no. 1 is dismissed.” The record would show that the assessee which is a 100% Government owned company was heavily reliant on the Government for its funds. Important members of the Board of Directors of the company were Government officers occupying office in the Finance Department. Periodical meetings of the company would also held there. If under such circumstances, under the suggestion or directives of the Government, repair or renovation work was carried out, the same cannot be seen as disconnected with the assessee’s business. Tax Appeal is therefore dismissed. [Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 4 of 4 "