Principal Commissioner Of Income Tax 2 v. Gujarat State Financial Services Ltd =============================================================

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 2VersusGUJARAT STATE FINANCIAL SERVICES LTD============================================================= Appearance : Mrs MAUNA M BHATT, Advocate for the PETITIONER(s) No. 1Mr JP SHAH, Sr Advocate with Mr. MANISH J SHAH, Advocate for the RESPONDENT(s) No. 1 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHIandHONOURABLE Mr. JUSTICE B.N. KARIA15[th] 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 6[th] 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?” In these two appeals, since the facts are common, we may notice the same from Tax Appeal No. 1254 of 2018. The respondent-assessee is Gujarat State Financial Services Limited. For the Assessment Year 2009-2010, 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 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 “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 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.] Prakash [B.N Karia, J.]