Commissioner of Income Tax vs G.T. Industries

U.T. Shah, J.—u/s 256(1) of the Income Tax Act, 1961 the Income Tax Appellate Tribunal has referred the following question at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in capitalising the expenditure of Rs. 86,799 and allowing depreciation and development rebate thereon ?"

The assessee is a firm. The assessment year is 1966-67 and the relevant previous year ended on March 31, 1965. During the relevant previous year, the assessee had incurred certain expenditure in setting up a factory for the manufacture of paper boards at Ujhani in District Badaun (U. P.).

The machinery was acquired from Calcutta and, after construction of the factory building, the same was installed. The assessee had incurred expenditure of Rs. 1,59,910 in connection with the construction of the factory and erection of plant. The assessee had capitalised this amount and claimed depreciation thereon. The Income Tax Officer, however, refused to capitalise Rs. 1,08,007 out of Rs. 1,59,910. In appeal, the Appellate Assistant Commissioner of Income Tax had directed the Income Tax Officer to capitalise a further amount of Rs. 86,799 pertaining to trial expenses, interest and legal charges.

The Revenue took up the matter before the Income Tax Appellate Tribunal and contended that Rs. 86,799 could not have been capitalised. In this connection, reliance was placed on the decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax Vs. Challapalli Sugars Ltd., . The Tribunal, however, following the decision of the Calcutta High Court in the case of Commissioner of Income Tax (Central) Vs. Standard Vacuum Refining Co. of India Ltd., , upheld the action of the Appellate Assistant Commissioner. In the said case, the Calcutta High Court had held that certain expenditure incurred prior to the setting up of the factory has to be capitalised. As there were divergent views on the issue involved, the Tribunal referred the aforesaid question for the opinion of this court.

At the time of hearing, learned counsel for the Revenue was fair enough to state that, since the Supreme Court has reversed the aforesaid decision of the Andhra Pradesh High Court in Challapalli Sugar Ltd. Vs. The Commissioner of Income Tax, A.P., Hyderabad, , the reference has to be answered in favour of the assessee.

Following the aforesaid decision of the Supreme Court, we answer the question in the affirmative and in favour of the assessee. No order as to costs.