2007 (11) TMI 7 - SC - Income Tax

Depreciation - Revenue contended that assessee-appellant is not entitle for depreciation on the building constructed for its employees u/s 32(1)(iv) of ITA,1961 on the ground that it is not available for professional - Held that revenue contention was correct and allowed

Summary

Issues Involved:
1. Interpretation of Section 32(1)(iv) of the Income Tax Act, 1961.
2. Applicability of Section 32(1)(iv) to a Chartered Accountant's firm.
3. Relevance of the Supreme Court's judgment in Barendra Prasad Ray v. Income Tax Officer, 1981 (2) SCC 693.

Issue-wise Detailed Analysis:

1. Interpretation of Section 32(1)(iv) of the Income Tax Act, 1961:
The core issue revolves around the interpretation of Section 32(1)(iv) of the Income Tax Act, 1961, which pertains to depreciation on buildings used for the residence of employees. The appellant, a firm of Chartered Accountants, claimed initial depreciation under this section for a building constructed for its low-paid employees. The Income Tax Officer (ITO) rejected this claim, asserting that the provision applies only to businesses, not professionals. The High Court upheld the Tribunal's decision that the appellant was not entitled to this deduction as the term "business" in Section 32(1)(iv) does not encompass "profession."

2. Applicability of Section 32(1)(iv) to a Chartered Accountant's firm:
The appellant argued that since Section 32(1) refers to both "business" and "profession," the term "business" in Section 32(1)(iv) should be interpreted to include "profession." The appellant contended that the word "business" in the context of employees should cover both business and profession, advocating for a purposive interpretation of the section. However, the Revenue countered that Section 32(1)(iv) explicitly mentions "business," excluding professionals from its purview. The Supreme Court agreed with the Revenue, stating that the legislature intentionally distinguished between "business" and "profession" in Section 32(1). The Court emphasized that the specific mention of "business" in Section 32(1)(iv) indicates that the benefit was meant exclusively for those carrying on business, not profession.

3. Relevance of the Supreme Court's judgment in Barendra Prasad Ray v. Income Tax Officer, 1981 (2) SCC 693:
The appellant relied on the Supreme Court's judgment in Barendra Prasad Ray, where the term "business connection" in Section 9 of the Act was interpreted to include "professional connections." The appellant argued that this interpretation should apply to Section 32(1)(iv) as well. However, the Supreme Court distinguished the two cases, noting that Section 9(1) and Section 32(1)(iv) operate in different contexts and fields. The Court clarified that the interpretation of "business connection" in Section 9(1) cannot be applied to Section 32(1)(iv) to include "profession" within "business." The Court reiterated that the decision in Barendra Prasad Ray was based on the specific facts and circumstances of that case and should not be generalized.

Conclusion:
The Supreme Court concluded that Section 32(1)(iv) of the Income Tax Act, 1961, does not extend to professionals, including Chartered Accountants. The term "business" in this section is not interchangeable with "profession." Therefore, the appellant, a Chartered Accountant's firm, is not entitled to the initial depreciation claimed under Section 32(1)(iv). The appeal was dismissed, with the Court affirming the decisions of the Tribunal and the High Court.