VIKRAM MILLS LTD. VS COMMISSIONER OF INCOME-TAX
2002 P T D 1653
[242 I T R 290]
[Gujarat High Court (India)]
Before C. K. Thakkar and M. C. Patel, JJ
VIKRAM MILLS LTD. (now known as Amruta Mills Ltd
versus
COMMISSIONER OF INCOME-TAX
Income-tax References Nos.72 and 73 of 1984, decided on 24/06/1998.
(a) Income-tax---
----Business expenditure---Betterment charges---Not deductible--- Indian Income Tax Act, 1961, S.37.
(b) Income-tax---
----Capital or Revenue expenditure---Bank guarantee commission-- Revenue expenditure---Indian Income Tax Act, 1961, S.37.
Held, (i) that the Tribunal was right in law in holding that the betterment charges were not deductible in the computation of total income.
CIT (Addl.) v. Rohit Mills Ltd. (1976) 104 ITR 132 (Guj.) and Arvind Mills v. CIT (1992) 197 ITR 422 (SC) fol.
(ii) that the bank guarantee commission paid by the assessee was a Revenue expenditure and hence allowable as a deduction in computing the total income.
CIT (Addl.) v. Akkamaba Textiles Ltd. (1997) 227 ITR 464 (SC) and CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) fol.
CIT (Addl.) v. Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP); CIT v. Bharat Suryodaya Mills Co. Ltd. (1993) 202 ITR 942 (Guj.); CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Gui.) and Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) ref.
Manish J. Shah for J.P. Shah for the Assessee. P.G. Desai with Manish R. Bhatt for the Commissioner.
JUDGMENT
C.K. THAKKAR, J.---In Income-tax Reference No.72 of 1984 the following two questions have been framed for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the betterment charges were not deductible in the computation of total income?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that expenditure by way of bank guarantee commission is expenditure of capital nature and not deductible in computation of total income?"
In Income-tax Reference No.73 of 1984, the following three questions have been framed for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the betterment charges were not deductible in the computation of total income?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that expenditure by way of Bank guarantee commission is expenditure of capital nature and not deductible in computation of total income?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that stamp charges paid in respect of agreement for the deferred payment basis was expenditure of capital nature?"
So far as Question No.3 in Income-tax Reference Nti.73 of 1984, is concerned, Mr. Shah, learned Advocate for the assessee, made a statement that in view of depreciation allowed to the assessee in subsequent years, he does not press that question. That question, therefore, does not survive and no opinion is expressed.
So far as Question No. l in both the references is concerned, it is covered by a decision of this Court in CIT (Addl.) v. Rohit Mills Ltd. (1976) 104 ITR 132, approved by the Supreme Court in Arvind Mills v. CIT (1992) 197 ITR 422. The question was decided in favour of the Revenue and against the 1ssessee. Accordingly, the question is decided in, the affirmative, i.e., against the assessee and in favour of the Revenue..
On Question No. 2 in both the references, the authorities relied upon a decision of this Court in CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389, and held that expenditure by way of bank guarantee commission for purchase of machinery on deferred payment 'basis is expenditure of a capital nature and is not deductible in the computation of total income of the assessee. In CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Guj.), the decisions in Addl. C.I.T. v. Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP) and Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) were cited. The assessee relying upon the above two decisions, contended that the view taken in the above two decisions was that the expenditure by way of bank guarantee commission could not be said to be part of expenditure of a capital nature but Revenue expenditure and it was, therefore, deductible in the computation of total income. The Division Bench observed that in those cates such a view was taken. It, however, dissented from the said view and ultimately held that such an expenditure can be said to be expenditure of capital nature and the authorities were right in not granting deduction from total income. Accordingly, the question was decided against the assessee and in favour of the Revenue. A similar view was also taken by the Court in a subsequent case in CIT v. Bharat Suryodaya Mills Co. Ltd. (1993) 202 ITR 942. Following Vallabh Glass Works Ltd.'s case (1982) 137 ITR 389 (Guj.), this Court held that bank guarantee commission for purchasing machinery was expenditure of a capital nature and, therefore, was not deductible from the total income of the assessee.
Mr. Shah drew .our attention to two decisions of the Supreme Court in CIT (Addl.) v. Akkamaba Textiles Ltd. (1997) 227 ITR 464 (SC) and CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465. In Sivakami Mills Ltd.'s case (1997) 227 ITR 465, the Supreme Court referred to Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) as also CIT (Addl.) v. Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP). The Supreme Court observed as under (page 467):
"The short question that arises for our consideration in his appeal is whether the guarantee commission paid by the assessee is a Revenue expenditure and hence allowable as deduction in computing the total income in the assessment year 1968-69. The High Court answered the question in favour of the assessee (see (1979) 120 ITR 211). It was held that the guarantee commission paid by the. assessee was a Revenue expenditure and hence allowable as a deduction in computing the total income. The Revenue has' come in appeal".
A similar question arose before the Andhra Pradesh High Court in Addl. CIT v. Akkamba Textiles Ltd. (1979) 117 ITR 294. The Court held that the expenditure incurred is Revenue in nature and so allowable as deduction. Civil Appeal No.2832 of 1977 preferred against the said decision was dismissed by this Court (see (1997) 227 ITR 464). In view of the aforesaid decision we see no force in this ap al. Accordingly, this appeal is dismissed.
In Vallabh Glass Works Ltd.'s case (1982) 137 ITR 389 (Guj.). this Court dissented from the view taken by the Andhra Pradesh and Madras High Courts, but the Supreme. Court in the above two cases dismissed the appeals filed by the Revenue on the basis of the above two decisions, virtually affirming the view taken by them.
In these circumstances, in our opinion, the decision in Vallabh Glass Works Ltd.'s case (1982) 137 ITR 389 (Guj.), stands impliedly overruled to that extent. The, second question in both references, therefore, must be answered in the negative, i.e., in favour of the assessee and against the Revenue.
References are disposed off accordingly. No order as to costs.
M.B.A./696/FCOrder accordingly.