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TMI Blog1997 (2) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed expenditure on guest-house of Rs. 8,83,372 and this was disallowed by the Assessing Officer under the provisions of section 37(4) of the Income-tax Act. The Commissioner of Income-tax (Appeals) deleted the following expenditure :- Rs. (i) Rates and taxes on building 11,082 (ii) Repairs to buildings 5,18,776 (iii) General repair expenses to equipments, furniture, etc. 2,11,447 7,41,305 4. In the present ground, the assessee has sought deletion of the occupancy charges of Rs. 2,55,846 and administration charges of Rs.6,27,526 aggregating to Rs. 8,83,372. The assessee has also raised an additional ground vide letter dated December 12, 1994, which reads as follows : “The learned Commissioner of Income-tax (Appeals) erred in not excluding the following expenditure for processing disallowance under section 37(4) of the Income-tax Act. Rs. Rent 2,81,574 Depreciation 1,02,701 5. As no new facts are required to be gone into and the ground is raised in the light of the decision of the Bombay High Court in the case of Century Spg. and Mfg. Co. Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1989] 177 ITR 124 (Bom). So, the first ground raised by the assessee is rejected and the additional ground in terms of the claim for deduction of rent only is allowed. The ground raised by the Revenue on this issue is also rejected. 50. The next ground relating to deletion of Rs. 7,41,305 being the addition made under the provisions of section 37(4) has already been considered while disposing of the appeal of the assessee above. 70. In the result, the appeal of the assessee (ITA No. 9811/Bom of 1989) and that of the Revenue (ITA No. 124/Bom of 1990) are partly allowed. M. K. Chaturvedi (Judicial Member).-I have carefully perused the order proposed by my learned brother, Shri M. V. R. Prasad, and since I have not been able to agree with the findings given, apropos the allowability of expenditure, in the nature of rent, repairs and taxes, incurred on the maintenance of guest-house, I record my views here as under. The expenditure incurred by an assessee on the maintenance of guesthouses was, till February 28, 1970, allowed as deduction in computing the profits and gains of business or profession, subject to certain limits and conditions prescribed in rule 6C of the Income-tax R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for the sure and true interpretation of all statutes in general ... four things are to be discerned and considered : (i) what was the common law before making of the Act ; (ii) what was the mischief and defect for which the common law did not provide ; (iii) what remedy Parliament hath resolved and appointed to cure the disease of the common-wealth ; and (iv) the true reason of the remedy, and then the office of all the judges is always to make such construction as shall supress the mischief and advance the remedy.” Testing the prescription of section 37(4) on the touchstone of Heydon’s rule, we find that expenditure on maintenance of guest-house was allowable till February 28, 1970, as a deduction in computing the profits and gains of the business. It was subject to the limits as prescribed in rule 6C as existed at that time. It was felt by the Legislature that business houses were incurring lavish expenditure on maintenance of guest-houses and claiming the same as a deduction. In order to put a check on such lavish expenditure, section 37(4) was inserted. It would be pertinent to reproduce here the relevant portion of the Notes on Clauses and Memo explaining the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilitate liasion with the Reserve Bank of India. Accommodation hired or reserved in a hotel for a period of more than six months during the year is treated as a guest-house for the purposes of the rules.” The remedy Parliament hath resolved and appointed to cure the disease is thus explained. The meaning and intention of a statute must be collected from the plain and unambiguous expression used therein. The rule of construction which is relevant to the present enquiry is expressed in the maxim, “Generalia specialibus non derogant.” [General things will not derogate from special things] The apex court in the case of CIT v. Shahzada Nand and Sons [1966] 60 ITR 392 at page 400 discussed the abovesaid principle. To explain the rule, it would be apt to quote the following passage from the book “Craies on Statute Law” fifth edition, at 205 : “The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorting to the provisions of section 37(4) of the Income-tax Act, 1961 ?” We direct the Registry to put the file before the President. Order of Third Member A. Kalyanasundhram (Accountant Member).-The learned members have been unable to agree on an issue that arose from the cross-appeals and I have been called upon to resolve the point of difference. The learned members have stated their disagreement in the following question for my consideration. “Whether the rent, repairs and taxes pertaining to the guest-house maintained by the assessee can be disallowed by resorting to the provisions of section 37(4) of the Income-tax Act, 1961 ?” The learned Accountant Member (hereinafter referred to as the AM) was of the opinion that rent, repairs and taxes are not to be disallowed by resorting to the provisions contained in section 37(4) of the Incometax Act, 1961 (hereinafter referred to as the Act), because, they are allowed with reference to the provisions contained in sections 30 and 31 of the Act. He was further of the view that his conclusion has the sanction of the Mumbai High Court in CIT v. Chase Bright Steel Ltd. (No. 1) [1984] 177 ITR 124. The learned Judicial Member (herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental representative contended that the Mumbai High Court in Chase Bright [1989] 177 ITR 124 (Bom) had considered the provisions of section 37(3) of the Act only and because, at the relevant point of time, section 37(4) of the Act did not exist, it could not consider it. He submitted in the decision in Century Spinning [1991] 189 ITR 660 (Bom), the provisions of section 37(4) were duly considered after which they had applied the ruling in Chase Bright [1989] 177 ITR 124 (Bom). He contended that the Gujarat High Court in CIT v. Gaekwar Mills Ltd. [1992] 193 ITR 734, had upheld the disallowance of depreciation of guesthouse building which was so disallowed by resorting to the provisions contained in section 37(4) of the Act. He also referred to the decision of the Andhra Pradesh High Court in CIT v. Maddi Venkataratnam and Co. Pvt. Ltd. [1996] 217 ITR 571, where the principles of Ocean Carriers [1995] 211 ITR 357 (Bom) were applied. The controversy that has arisen in the instant case is one of interpre tation of the provisions contained in sections 37(1) and 37(4) of the Act and, therefore, it becomes necessary for me to appreciate the intention of the law-makers. The law-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions contained in those sections. The Act does contain certain sections that override the provisions of some sections of the Act like sections 40, 40A, 43A, 43B, 44, 44A, 44AC, 44B, 44BB, 44BBA, 44BBB, 44C and 44D of the Act. Section 40 of the Act of the Act uses the words, “notwithstanding anything to the contrary in sections 30 to 39 (effective from 1-4-1989, 39 is to be read as 38), the following amounts shall not be deducted in computing the income chargeable under the head ‘Profits and gains from the business or profession’. Section 40A uses the words, “the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act . . .” Section 43A of the Act uses the words “notwithstanding anything to the contrary contained in any other provisions of this Act . . . .” Section 43B of the Act also uses similar words as in section 43A of the Act concerning the deduction of certain expenses in the nature of tax, duty, cess, employer’s contribution to provident fund, etc., and had added a condition that the deduction is allowable only on actual payment. Section 44 of the Act had defined the manner of computing the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, for the sake of convenience, reproduce sub-section (3) and (4) of section 37 of the Act. Section 37(3) of the Act starts with the words “notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after March 31, 1964, on advertisement or maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such other conditions, if any, as may be prescribed”. Section 37(4) of the Act that is effective from April 1, 1970, reads as under. “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 February 28, 1970, on the maintenance of any residential accommodation in the nature of a guest-house ; (ii) in relation to the assessment year commencing on April 1, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment allowance and investment allowance deposit to any plant or machinery installed in any residential accommodation, including any accommodation in the nature of a guest-house. This gives an impression that the law makers were aware of the aspects of a guesthouse like it being a building that could be owned and used for the business but, desired to place certain restrictions of it being not entitled to additional depreciation, investment allowance and investment allowance deposit. It could also be said that the law-makers were aware that a building could be hired for use as a guest-house resulting in expenses incurred in connection therewith like rent, repairs, rates and taxes and so on. Because, sections 30 and 31 of the Act that deal with the allowing of expenditure on rent, repairs, rates and taxes, do not contain any restrictive covenants as is seen in sections 32, 32A and 32AB of the Act, it is suggestive of the intention of the law-makers that they felt no need for the same. Sections 30 and 31 of the Act concern themselves with the rent, rates, taxes, repairs and insurance for premises used for the purposes of the business or profession. They do not contain any further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in my view was a well intended one because, the law-makers wanted clear demarcation of the term “any expenditure” as exclusive to what has been stated in certain other sections. Therefore, it gives an impression that section 37(1) of the Act is intended to deal with exclusive items of expenditure which expenditure are not covered by sections 30 to 36 of the Act. The term “any expenditure” has to be read as to mean “any other expenditure that are not so described in sections 30 to 36”. From this angle, the provisions of sections 37(3) and 37(4) override the provisions of section 37(1) of the Act that deals with such items of expenditure that are exclusive to the section, and, therefore, the overriding has to be restricted to such items of expenditure that are exclusively dealt with in that section. The courts have ruled that the interpretation of a provision of a section should not be so made so as to negate the section itself or make it impossible to implement, and it is necessary to appreciate the provisions in a homogeneous manner. In this proposition, it might be proceeded with on the basis that the specific mention of the guest-house not being eligible for additional depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concessional rate. The court also referred to the provisions of sub-section (5) to section 37 of the Act, that was inserted by the Finance Act, 1983, giving it a retrospective operation from April 1, 1979, clarifying that accommodation maintained by the assessee to provide lodging or boarding and lodging to any person including any employee or a director or the holder of any office in the assessee-company would be in the nature of a guesthouse within the meaning of sub-section (4) of section 37 of the Act. It was accordingly concluded that (page 361) : “….. 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.” The Bombay High Court in Raja Bahadur Motilal Poona Mills Ltd. v. CIT [1995] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable under section 30 and in respect of the maintenance expenses under section 31, and, therefore, neither section 37(3) of the Income-tax Act, 1961, nor any rules made thereunder were applicable to the case. The Tribunal considered the submissions that expenditure of Rs. 4,200 on rent and Rs. 1,603.19 on the repairs and polishing of the furniture was allowable under sections 30 and 31 of the Act and not under section 37(1) of the Act and, therefore the provisions of section 37(3) of the Act were not applicable and upheld the same. The High Court considered the submissions of the Department that section 37(3) of the Act was in reality a substantive provision, which had an overriding effect on all the provisions in the Act pertaining to allowance of expenditure in computing the income from business and profession and that it specifically covered all kinds of expenses incurred in connection with the guest-house maintained by an assessee for the purpose of its business and that if the view taken by the Tribunal was accepted, the provisions of section 37(3) will become otiose and further that such a construction, it was argued, is to be avoided. The court after reproducing section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, we find that the submission is correct. Accordingly, we hold that the assessee was entitled to depreciation in respect of its property.” The Bombay High Court decision in Ocean Carriers P. Ltd. [1995] 211 ITR 357 and in Raja Bahadur [1995] 212 ITR 175 contained no reference to the earlier two decisions of the same court in Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 and Century Spinning and Manufacturing Co. Ltd. [1991] 189 ITR 660 and furthermore because, the later decisions and the earlier decisions are all issued by the Division Benches, the later decisions cannot be said to have overruled the earlier decisions. Because, the later decisions did not contain any reference to the earlier decisions, the later decisions are perhaps issued per incuriam, i.e., in ignorance of the existence of an earlier decision and further because, the later decisions had no fresh material like the decision of the apex court without which, it could be difficult to hold that the later decision should hold the field in preference to the earlier decisions. At best it could be said that the Bombay High Court had given two views on the subject of allowance or non-allowance of expenses concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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