2003 (5) TMI 11 - HC - Income Tax

Depreciation on guest house - Whether the Income-tax Appellate Tribunal is legally justified in allowing depreciation on guest house ignoring the specific provisions of section 37(4) prohibiting allowance of depreciation on guest house? - Sub-section (4) of section 37 starts with a non obstante clause and specifically prohibits allowance of depreciation of any building used as a guest house. It is also not the case of the assessee that the guest house was maintained as a holiday home. Once a specific provision is there whereby depreciation has been denied, the general provision which relates to depreciation will not prevail over this specific provision. Therefore, the depreciation is otherwise also not allowable on the guest house maintained by the assessee. - In the result, we answer the question in the negative, i.e., in favour of the Revenue

Summary

Issues:
Whether depreciation on a guest house can be allowed under section 37(4) of the Income-tax Act, 1961.

Analysis:
The case involved a dispute regarding the allowance of depreciation on a guest house by the assessee for the assessment year 1986-87. The Assessing Officer denied the claim of depreciation, stating that the guest house was not used for business purposes. The Commissioner of Income-tax (Appeals) upheld this decision, emphasizing the lack of evidence supporting the professional use of the guest house.

The Tribunal, however, relied on the decision of the Bombay High Court in CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124, which held that section 37(4) does not apply to allowances permitted under other sections of the Act. The Tribunal allowed the depreciation on the guest house, leading to the current dispute.

The Department argued that the specific provision of section 37(4) prevails over general provisions, citing judgments from the Bombay High Court and the Madras High Court. The assessee's counsel contended that section 37(4) is a proviso and should not override the right to claim depreciation under section 32, referencing the decision in Century Spinning and Manufacturing Co. Ltd. v. CIT [1991] 189 ITR 660.

The High Court noted that the guest house was not used for business purposes, a fact undisputed by the Tribunal. It emphasized that when an asset is not utilized for business, no depreciation can be allowed. The Court rejected the assessee's argument that section 37(4) is merely a proviso, stating that the specific provision prohibiting depreciation on a guest house prevails over the general provision for depreciation under section 32.

Ultimately, the Court ruled in favor of the Revenue, concluding that depreciation on the guest house maintained by the assessee was not allowable under section 37(4). The decision disposed of the income-tax reference accordingly.