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TMI Blog2002 (10) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; Section 37(1): "Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'." Section 37(4): "(4) Notwithstanding anything contained in sub-section (1) or sub-section (3)- (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as "guest-house"); (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision will cover not only the establishment and other charges for running the guest-house, but also depreciation on the building where this is owned by the assessee, and rent paid for the accommodation where this is taken on hire or lease. Depreciation on assets, such as air conditioners, refrigerators, cooking ranges, furniture and fittings, etc., in the guest house will also be disallowed under the proposed provision." 4. It is apparent that the intention is expressed in the widest possible terms and the avowed object is to check lavish expenditure and it is accepted as a fact that the existing provisions have been "of little effect in curing proliferation of guest houses." Section 37(5): "(5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of decisions both of the Hon'ble High Courts and various Benches of the Tribunal and his main submissions are that the judgments in favour of the assessee dealt with every aspect of the matter both on facts and in law whereas the decisions in favour of the Revenue did not consider the entire spectrum of the provisions in question. The decisions on which he relied upon were as under:-- (i) Century Spg. Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660 (Bom.); (ii) CIT v. Chase Bright. Steel Ltd. (No. 1) [1989] 177 ITR 124(Bom.); (iii) Enkay (I) Rubber Co. (P.) Ltd. v. IAC [1992] 40 ITD 114 (Delhi); (iv) Pandyan Insurance Co. Ltd. v. CIT [1965] 55 ITR 716 (SC); (v) CIT v. Midland Rubbers Produce Co. Ltd. [1998] 232 ITR 530 (Ker.); (vi) CIT v. A.V. Thomas Co. Ltd. [1997] 225 ITR 29 (Ker.); (vii) CIT v. Price Waterhouse [1994] 207 ITR 564 (Cal.); (viii) George Williamson (Assam) Ltd v. CIT [1997] 223 ITR 203 (Gauhati); (ix) CIT v. Travancore Cements Ltd. [1999] 240 ITR 816 (Ker.) (FB); (x) CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553 (Cal.); (xi) Kelvinator of India Ltd. v. IAC [1989] 29 ITD 469 (Delhi); (xii) ITO v. Bush India Ltd. [1984] 9 ITD 882 (Bom.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-operative Sugar Mills Ltd. [1998] 146 CTR (Mad.) 730; (ix) Purolator India Ltd v. IAC [1990] 34 ITD 286 (Delhi) and (x) ITO v. Mohan Meakin Breweries [1987] 20 ITD 179 (Delhi). 10. The learned counsel for the assessee in the reply referred at length to the decisions relied upon by the learned Departmental Representative and vis-a-vis some of these judgments his submissions were as under:-- (i) The Hon'ble Gujarat High Court although expressing an opinion in favour of the Revenue in CIT v. Gaekwar Mills Ltd. [1992] 193 ITR 734 had expressed an opinion to the contrary i.e. in favour of the assessee in Kaira Distt. Co-operative Milk Producers' Union Ltd.'s case and Maharana Mills Ltd.'s case. Further in Arvind Mills Ltd.'s case the Gujarat High Court had decided against the assessee without taking into account the decisions of the same Court, which were in favour of the assessee; (ii) The decision of the Hon'ble Bombay High Court in Ocean Carriers (P.) Ltd.'s case which had gone in favour of the Revenue was decided ex parte qua the assessee and even the question posed before Their Lordships was different; and (iii) The decision of the Hon'ble Kerala High Court in Catalys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue is that Villa 7 maintained by the assessee at Porbandar was admittedly a guest-house and, therefore, section 37(4) was attracted in this case, and that it was not open to the assessee to claim deduction of that amount under section 30 of the Act. This contention raised on behalf of the Revenue cannot be accepted in view of the two decisions of this court in CIT v. Kaira District Co-operative Milk Producers' Union Ltd. [1991] 192 ITR 608 and CIT v. Ahmedabad Mfg. Calico Printing Co. Ltd. [1992] 197 ITR 538. The view taken by this court is that the expenditure which is referred to in clause (i) of sub-section (4) of section 37 is one, which would be allowable as deduction under section 37(1). In order to attract the provisions of sub-section (4), it must first be established that it is an expenditure, which is covered by section 37(1). Section 37(1) refers to expenditure, (i) which is not an expenditure of the nature described in section 30; (ii) which is not an expenditure of capital nature; and (iii) which is not personal expenditure of the assessee. Since the expenditure in question was an expenditure in the nature described in section 30, it would not fall unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80VV and not being in the nature of capital expenditure or personal expenses of the assessee. Sub-section (1) of section 37 makes it so clear. Sub-sections (2) and (2A) impose certain restrictions in allowing deduction to the expenditure in the form of entertainment expenditure notwithstanding sub-section (1) of section 37. Sub-section (2B) says that notwithstanding anything contained in section 37(1), no allowance shall be made in respect of any expenditure incurred on Advertisement in any souvenir, brochure, tract, pamphlet or the like published by any political party. Sub-section (3) imposes a restriction that notwithstanding sub-section (1), the expenditure towards advertisement or on maintenance of residential accommodation including guest-house or in connection with the travelling of an employee, shall be allowed only to the prescribed limit. Sub-section (3A) makes certain restrictions in allowing the expenditure on the items mentioned in sub-section (3B) notwithstanding section 37(17). Sub-section (3B) deals with the following items of expenditure: (i) advertisement, publicity and sales promotion, (ii) running and maintenance of aircrafts and motor cars, and (iii) payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips were only deciding whether the accommodation in question was a "guest house", but the following observations at pages 361 and 362 of the report nullify this argument:-- "Taking the totality of the circumstances into consideration, in our view, by providing accommodation to the members of the crew as also to representatives of the assessee's principal non-resident shipping companies in these flats, the assessee-company had treated these flats as its own guest houses and since these guest houses were not maintained exclusively as a holiday home for the employees of the assessee-company, the assessee-company was not entitled to allowance under section 37(4) in respect of any expenditure on maintenance thereof incurred after February 28, 1970, nor to any depreciation allowance." 18. Hon'bleMadrasHigh Court: In Mathurantakam Co-operative Sugar Mills Ltd.'s case, Their Lordships have decided against the assessee, observing as under:-- "The object behind the introduction of the provisions of section 37(4) is to curb the lavish expenditure incurred by the assessee on the maintenance of the guest house. In the absence of any such provision like that of section 37(4) the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he maintenance of guest houses. 20. A perusal of the judgments of the Hon'ble High Courts also reveals that the opinion is divided and whereas some of them have interpreted the provisions without reference to the legislative intent, certain Hon'ble High Courts have highlighted the legislative intent as well. 21. We would also like to emphasise that sections 30 and 31 deal with rent, repairs etc. of buildings, plant machinery and furniture etc. whereas section 32 deals with depreciation of various types of assets including buildings etc. These sections stipulate that the use of the asset is for the purposes of business and profession. As against this section 37(1) refers to expenditure not being expenditure of the nature described in sections 30 to 36 and not being the personal expenditure of the assessee, but expenditure laid out or expanded wholly and exclusively for purposes of business or profession. Going still further, section 37(4) deals with expenditure pertaining to the maintenance of a guest house as also depreciation on such guest house and going further depreciation on any asset in a guest house. Section 37(5) defines what is a guest house. The learned Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mischief or defect for which the law did not provide, (iii) What is the remedy that the Act has provided, and (iv) What is the reason of the remedy. The rule then directs that the courts must adopt that construction which "shall suppress the mischief and advance the remedy'." Inconsistency and repugnancy to be avoided; harmonious construction "It has already been seen that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency of repugnancy either within a section or between a section and other parts of the statute. It is the duty of the courts to avoid "a head on clash" between two sections of the same Act and, "whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise." It should not be lightly assumed that "Parliament had given with one hand what it took away with the other". The provisions of one section of a statute cannot be used to defeat those of another "unless it is impossible to effect reconciliation between them". Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly deals with expenditure on the maintenance of the guest house as well as with the notional allowance for depreciation of any building used as a guest house or of any assets used in the guest house. Sub-section (1) of section 37 specifically excluded from its operation expenditure not being expenditure of the nature described in sections 30 to 36. Sub-section (4) begins by saying notwithstanding anything contained in sub-section (1) or sub-section (3)'. Therefore, when sub section (4) excludes sub-sections (1) and (3) of section 37, it extinguishes the exclusionary words 'not being expenditure of the nature described in sections 30 to 36' used in section 37. The effect of the non obstante clause in sub-section (4), therefore, is that it overrides all other provisions in the Act wherever they may be found. Even otherwise it is settled rule of interpretation of statutes that the specific overrides the general. Sub-sections (3) and (4) of section 37 specifically deal with certain types of expenditure and, therefore, they will override the general provisions contained, inter alia, in sections 30 and 32. Therefore, the learned Commissioner (Appeals) in the present case, was wrong in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guest house or depreciation of any asset in a guest house. The Explanation to the aforesaid sub-section makes a specific reference to rent paid in respect of accommodation which is to be disallowed. Reading these provisions conjointly with those of section 30 and section 32 would show that the former is more specific than the one relating to the latter. Section 30 refers to rent paid by any tenant in respect of the premises used for the purposes of business or profession. Similar is the case in respect of section 32 which makes a reference to depreciation in respect of any building, machinery, plant or furniture owned by the assessee. These sections are wide enough to cover any types of premises whereas it is not so in the case of section 37(4) and (5) which is very specific and pertains to a guest house alone. On a comparison of the two provisions, viz., section 37(4) read with section 37(5) with sections 30 and 32, it would be clear that the former is more specific and the latter more general. In clear and unambiguous terms the Legislature has used the words 'rent and depreciation'. Though the latter is not covered in the expression 'expenditure' as held by their Lordships of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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