2002 (10) TMI 236 - AT - Income Tax

Summary

Issues Involved:
1. Whether expenditure on account of Rent & Repairs can be disallowed u/s 37(4) or allowed u/s 30 and 31.

Summary:

Issue 1: Disallowance of Expenditure on Rent & Repairs u/s 37(4) vs. Allowance u/s 30 and 31

Background and Legislative Intent:
The Special Bench was constituted to address the divergence of opinion regarding the disallowance of expenditure on Rent & Repairs u/s 37(4) versus their allowance u/s 30 and 31. Section 37(4) was introduced by the Finance Act, 1970, to curb lavish expenditure on guest houses, disallowing any expenditure on maintenance of guest houses incurred after February 28, 1970.

Arguments by Assessee:
1. Section 29 mandates that income from business or profession should be computed in accordance with sections 30 to 43D.
2. Sections 30 and 31 specifically deal with deductions for rent, rates, taxes, and repairs.
3. Section 37 is a general provision, whereas sections 30 to 36 are special provisions.
4. Section 37(4) overrides only section 37(1) and 37(3), not sections 30 to 36.
5. The term "maintenance" does not include "repairs."
6. The legislative intent should not enlarge the scope of section 37(4).

Arguments by Revenue:
1. Section 37(4) is a special provision that excludes sections 30 to 36.
2. The latter provision in point of time should prevail in case of conflict.
3. The interpretation favoring the assessee would render section 37(4) redundant.
4. Section 37(5) ensures that no expenditure escapes the ambit of section 37(4).

Judicial Precedents:
- In Favor of Assessee:
- Century Spg. & Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660 (Bom.)
- CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 (Bom.)
- CIT v. Kaira Distt. Co-operative Milk Producers' Union Ltd. [1991] 192 ITR 608 (Guj.)
- CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1992] 197 ITR 538 (Guj.)
- Travancore Cements Ltd. [1999] 240 ITR 816 (Ker.) (FB)

- In Favor of Revenue:
- Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.)
- CIT v. Upper Ganges Sugar Mills Ltd. [1994] 206 ITR 215 (Cal.)
- CIT v. Arvind Mills Ltd. [2001] 248 ITR 187 (Guj.)
- United Catalysts India Ltd. v. CIT [1998] 229 ITR 233 (Ker.)

Tribunal's Analysis:
The Tribunal emphasized the legislative intent behind section 37(4), which was to curb lavish expenditure on guest houses. It highlighted that sections 30 and 31 deal with general provisions for rent and repairs, whereas section 37(4) specifically addresses guest house expenditures, making it a special provision that overrides the general provisions.

Conclusion:
The Tribunal upheld the action of the tax authorities in rejecting the claims on account of rent and repairs, concluding that section 37(4) is a specific provision that overrides the general provisions of sections 30 and 31. The appeal of the assessee was dismissed.