1993 (10) TMI 44 - HC - Income Tax

Assessment Year Business Expenditure Business Premises Commencement Of Business Income Tax Act Municipal Taxes

Summary

Issues Involved:
1. Deduction of municipal tax under Section 30(b) or Section 37 of the Income-tax Act.
2. Deduction of depreciation under Section 32 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Deduction of Municipal Tax under Section 30(b) or Section 37 of the Income-tax Act:
The primary issue was whether the assessee was entitled to deduct municipal tax for the office premises at Mittal Chambers, Bombay, under Section 30(b) or Section 37 of the Income-tax Act. The assessee claimed deductions for expenses and depreciation related to the office premises, which were under furnishing and not actively used for business until January 1977. The Income-tax Officer disallowed these claims, but the Appellate Assistant Commissioner allowed them, considering the expenses as business-related under Section 37.

The court examined the provisions of Sections 30 and 37. Section 30 allows deductions for rent, rates, taxes, repairs, and insurance for premises used for business purposes. Section 37, a general provision, allows deductions for any business expenditure not covered by Sections 30 to 36, provided it is not capital expenditure or personal expenses.

The court noted that Section 30 requires the premises to be used for business purposes. However, Section 37 is broader and includes expenses wholly and exclusively for business purposes, even if not covered by Sections 30 to 36. The court referenced the Supreme Court's decision in CIT v. Kalyanji Mavji and Co. and other cases to support a liberal interpretation of Section 37.

The court concluded that even if the claim under Section 30 was not sustainable, the expenses for ground rent and municipal taxes were wholly and exclusively for business purposes and should be deductible under Section 37. The court emphasized that business expenses must be deducted to determine true profits and gains, adhering to commercial principles.

2. Deduction of Depreciation under Section 32 of the Income-tax Act:
The second issue was whether the assessee was entitled to depreciation on the office premises at Mittal Chambers under Section 32. The assessee argued that the premises were used for business purposes from the time possession was taken in July 1975, as furnishing and layout work were part of business activities.

The court referred to previous judgments, including Sarabhai Management Corporation Ltd. v. CIT, which distinguished between setting up and commencing business. It held that business activities, such as furnishing and preparing premises for use, are part of setting up the business. The court also referenced Hotel Alankar v. CIT, which recognized preliminary activities as part of business operations.

Applying these principles, the court concluded that the premises were used for business purposes from the time of possession, as furnishing and repairs were necessary for business operations. Therefore, the assessee was entitled to depreciation under Section 32.

Conclusion:
The court held that the assessee was entitled to deductions for ground rent and municipal taxes under Section 37, even if not under Section 30, as these expenses were wholly and exclusively for business purposes. Additionally, the court affirmed that the premises were used for business purposes from the time of possession, entitling the assessee to depreciation under Section 32. The reference was disposed of in favor of the assessee, with no order as to costs.