Commissioner of Income Tax vs Sundaram Industries Ltd.

Ramanujam, J.—At the instance of the Revenue, the following four questions have been referred to this court for its opinion by the Income

Tax Appellate Tribunal :

(i) Whether, on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the sum of Rs. 13,582 spent on the

provision of coffee, cool drinks and sometimes meals also to customers cannot be viewed as an ''entertainment expenditure'' and, therefore, the

disallowance made in this regard was not called for ?

(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that in computing the capital gains arising

out of the sale of share in (i) M/s. Indian Motor Parts and Accessories Ltd. and (ii) M/s. Sundaram Private Limited, the provisions of section 52(2)

could not be invoked for adopting the fair market value in the place of sale price, since the Income Tax Officer had not established that the price

received was more than the one disclosed in the sale deed ?

(iii) Whether, on the facts and in the circumstances of the case and having regard to the provisions of rule 19A of the Income Tax Rules, 1962, the

Appellate Tribunal was correct in holding that for the purpose of allowing the relief u/s 80J in respect of the Kochadai Rubber Factory, the building

under construction and the assets awaiting installation therein should also be treated as forming part of the capital employed and the relief u/s 80J

should be allowed accordingly ?

(iv) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to relief u/s

80J in respect of the Vizag and Bangalore Units at 6% on the capital employed without it being limited to a proportionate basis to the actual period

of working by the said units ?

Coming to question No. (ii), we find that the question stand covered by a decision of this court in Commissioner of Income Tax Vs.

Karuppuswamy Nadar and Sons, , which is against the Revenue. Following the said decision, which is applicable to the facts of this case, the

question is answered in the affirmative and against the Revenue.

Coming the question No. (ii), we find that in view of the finding rendered by the Income Tax Appellate Tribunal that the Revenue has not

established that the sale price received towards the sale of the shares was more than the one disclosed in the sale deed, section 52(2) cannot stand

attracted to the facts of this case, in view of the decisions of the Supreme Court in K.P. Varghese Vs. Income Tax Officer, Ernakulam and

Another, . Following the said decision of the Supreme Court, this question is answered in the affirmative and against the Revenue.

Coming to the third question, we find that the said question stands concluded by a decision of this court in Jayaram Mills Ltd., Rajapalayam Vs.

The Commissioner of Excess Profits Tax, Madras, , a decision of the Calcutta High Court in Commissioner of Income Tax Vs. Indian Oxygen

Ltd., , a decision of the Karnataka High Court in Ravi Machine Tools (P.) Ltd. Vs. Commissioner of Income Tax, , a decision of the Gujarat High

Court in Commissioner of Income Tax, Gujarat-II Vs. Cibatul Ltd., , a decision of the Bombay High Court in Commissioner of Income Tax,

Bombay City-I Vs. Alcock Ashdown and Co. Ltd., , a decision of the Himachal Pradesh High Court in Commissioner of Income Tax Vs. Mohan

Meakin Breweries Ltd., and a later decision of this court in Commissioner of Income Tax, Tamil Nadu-II Vs. Madras Wire Products, . The

consistent and uniform opinion taken by the various High Courts in the decisions referred to above is that the capital invested in the purchase of

machinery will have to be taken as forming part of the capital for the purpose of relief u/s , even though the machinery purchased has not been put

to use in the relevant accounting year. Following the uniform view expressed in the above decisions, this question is also answered in the affirmative

and against the Revenue.

Regarding the fourth question, we find that the said question is also covered by a decision of this court in Commissioner of Income Tax, Tamil

Nadu-I Vs. Simpson and Company, , which is against the Revenue. It is not in dispute that the said decision is applicable to the facts of the present

case. Therefore, following the said decision, we answer this question in the affirmative and against the Revenue.

The reference is answered accordingly. However, there will be no order as to costs.

T. C. P. No. 299 of 1982 :

The Revenue, in this reference application, seeks a direction to the Tribunal to refer the following question for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in not considering the grounds 5, 6, 9 and 10

raised in the grounds of appeal raising questions as to which one of the balance-sheets reflected the true fair market value of the shares sold by the

assessee ?

This question proceeds on the basis that section 52(2) is applicable to the facts of the case and, therefore, the market value of the shares have to

be determined. A reading of the question will indicate that the question posed is as to how the market value of the shares sold by the assessee has

to be determined. In view of the fact that we have held in T. C. No. 1180 of 1980 that section 52(2) cannot be applied to the facts of this case as

the Revenue has not established that the sale price actually received case as the Revenue has not established that the sale price actually received

was more than the one disclosed in the sale deed, there is no question of computation of the capital gains at all on the basis of the market value. In

view of the adverse decision given by this court in the said tax case, this question is purely academic and it does not actually arise out of the order

of the Tribunal. This reference application is, therefore, dismissed.