GM gets relief in tax liability case from HC

Aug 27, 2012:

General Motors (GM) India Limited, Indian subsidiary of US-based auto giant General Motors Corporation Group, has got relief from Gujarat High Court in connection with a tax liability case filed against it by the Income Tax (I-T) Department.

A division bench of Justice V M Sahai and Justice N V Anjaria quashed notices issued to the company by I-T authorities ordering fresh assessment of its income tax return for assessment year 2006-07 and held that the income tax officials erred in issuing notices to the petitioner company.

The court further held that that GM was entitled to get the benefit of unabsorbed depreciation of past years. It further held that the company was eligible to get the depreciation set off against the profits of subsequent years. While deciding the important issue of depreciation, the bench ruled, “Current depreciation is deductible in the first place from the income of the business to which it relates. If such amount is larger than the amount of the profits of the business, then such excess comes for absorption from the profits and gains from any other businesses carried out by the assessee (GM).”

It added, “If a balance is left out even thereafter, that becomes deductible from out of income from any other source under any other heads of income during that year. In case there is still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year.”

GM India, manufacturing cars under brand name Chevrolet, had filed the petition before high court early this year and challenged the notice issued by the income tax department for reassessment of income return for assessment year 2006-07 in March, 2011. The company had sought interference of the court in holding that the income tax department had wrongly assessed its income for financial year 2006-07 to the tune of Rs 53 crore, whereas it had claimed nil tax for the period.

The company’s turnover in 2006-07 was Rs 1884.51 crore, on which it showed a profit of 55 crores. It however declared it’s total taxable income as nil under e-filing.

The case was sent to scrutiny, in which the revenue authorities held that they had reasons to believe to assess additional income of Rs 53 crores, upon which the company would have to pay tax. The company raised it’s objections to such findings with the Dispute Resolution Panel in Ahmedabad which issued direction to the Assessing Officer in August 2010 to make additions under the provisions of Section 144C (6) of the Income Tax Act.

The officer made additions under various heads to the income of the Company, and allowed unabsorbed depreciation of assessment year 1997-98 of Rs 43. 60 crore and accepted the total income at nil. The relevant additions were made to the income of the Company but the same was set off against various unabsorbed losses and unabsorbed depreciation of the previous year.

However, the Company got notice from the I-T department in March 2011 seeking reassessment of its return of assessment year 2006-07. The I.T. officials had reasoned that the Company was not entitled for set off of depreciation of 1997-98 against profits for year 2006-07. GM objected to the decision of I-T department and after there was no resolution on the issue with the I-T department, the former approached high court early this year.

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