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TMI Blog2015 (1) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... issed by the Supreme Court leaving the question of law open. - Decided in favour of assessee. Deduction in respect of guest house disallowed - ITAT allowed the deduction - Held that:- While the two expressions, 'premises and buildings' and 'residential accommodation including any accommodation in the nature of guest house' can be similarly interpreted, a distinction has been sought to be introduced for the purposes of Section 37 by specifying the nature of building to be a guest house. In our view, the intention of the Legislature appears to be clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purposes of a guest house of the nature indicated in Subsection (4) of Section 37. When the language of a statue is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give it a meaning which would cause violence to the provisions of the statute. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession, then it would not have felt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses, Entertainment Expenses, Disallowance under Section 40A(5), provision for Gratuity, etc. points were discussed. The assessee company has filed its return of income on 29.06.1987, declaring income of ₹ 10,28,33,600/-, whereas the Assessing Officer has assessed total income of ₹ 14,31,43,634/-. The assessee has filed appeal before CIT(A) who vide order dated 09.11.1990, partly allowed the appeal. 5. Feeling aggrieved by the said order, the assessee as well as Revenue both had filed ITA No.623/Ahd/1991 and ITA No.727/Ahd/1991 respectively before the Income Tax Appellate Tribunal, Ahmedabad. Both these appeals were partly allowed by the ITAT vide its order dated 04.05.2000. Hence, being aggrieved by the said order, the Revenue has filed present appeal. 6. We have heard learned counsel from all the sides. Tax Appeal No.384 of 2000 was admitted vide order dated 13.11.2000. While admitting the said Appeal, following substantial questions of law arose for the determination of this Hon'ble Court; (A) Whether, the Tribunal was justified in allowing deduction of ₹ 1,38,48,000/- on account of obsolescence charges in respect of certain nonmoving importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 purposes of the business or profession shall be allowed in computing the income chargeable under the head profits and gains of business or profession . (2) Notwithstanding anything contained in subsection (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:- i) On the first ₹ 10,00,000/- of the profits and gains of the business (computed before making any allowance under Section 33 [or Section 33A] or in respect of entertainment expenditure) At the rate of 1 per cent or ₹ 5,000/- whichever is higher; ii) On the next ₹ 40,00,000/- of the profits and gains of the business (computed in the manner aforesaid) At the rate of 3 = per cent; iii) On the next ₹ 1,20,00,000/- of the profits and gains of the business (computed in the manner aforesaid) At the rate of 4 = per cent; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this subsection, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. [Explanation 1]: For the purposes of this 'entertainment expenditure' includes- i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th of February, 1968; ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in Clause (i) incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person). Explanation 2 : For the removal of doubts, it is hereby declared that for the purposes of this subsection and subsection (2B), as it stood before the 1st day of April 1977, 'entertainment expenditure' includes expenditure on provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire; ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. (3C) Nothing contained in subsection (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of Section 80B, or a person (other than a company) who is resident in India in respect of expenditure incurred wholly and exclusively on # i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; ii) running and maintenance of motor cars in any branch, office or agency maintained outside India for the promotion of the sale outside India of such goods, services or facilities. (3D) No disallowance under subsection (3A) shall be made- i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft; ii) in the case of an assessee engaged in the business of running motor cars on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (4). The aforesaid provision of the Income Tax Act has undergone several changes from time to time and some of the portions, which are relevant for a decision in this case have since been omitted. However, it may be of interest to note that Subsection (1) of Section 37 was brought on the statute book in 1964 and underwent several other changes thereafter. Subsection (3) of Section 37 was inserted by the Finance Act 1964 with effect from 1st April, 1964 and was, thereafter, omitted by the Finance Act, 1997 with effect from 1st April, 1998. Similarly Subsection (4) was inserted by the Finance Act 1970 with effect from 1st April, 1970 and was, thereafter, omitted by the Finance Act, 1997 with effect from 1st April, 1998. As will be apparent from a reading of Subsection (1) of Section 37 of the Act, any expenditure not being expenditure of the nature described in Sections 30 to 36, inter alia, allowed and expended wholly and exclusively for the purposes of business or profession, is to be allowed in computing the income chargeable under the heading profits and gains of business or profession . In other words, Section 37 is to be read to the exclusion of the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) expenditure must not be of a personal nature; and (c) the expenditure must be incurred wholly and exclusively for the purposes of business. Dr. Pal also urged that Section 37 contains general provisions allowing deductions in respect of expenditure not included within Sections 30 to 36 of the Act. Dr Pal also urged that since expenditure incurred by the assessee towards payment of rent, rates, taxes, repairs and insurance of premises, buildings and furniture used for the purposes of the business or profession has been provided for specifically under Sections 30, 31 and 32 of the Act, by virtue of the nonobstante clause used in Subsection (1) of Section 37 such expenses could not again be referable to Section 37 and the different provisions thereof. In other words, Dr. Pal urged that since the aforesaid expenses had been specifically allowed to be deducted the said benefit could not be taken away by the including of the expression residential accommodation including any accommodation in the nature of a guest house in Subsection (3) of Section 37 of the said Act. Dr. Pal then urged that having allowed a partial benefit, it could not have been the intention of the Legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3A) cannot have any overriding effect in respect of other provisions pertaining to the allowances of expenditure under Sections 30 to 36 of the Act. Dr. Pal submitted that a similar distinction has been made by the Madras High Court in Commissioner of Income Tax vs. South India Viscose Ltd., reportesd in (2003) 259 ITR 107. Based on such distinction, it was held that rent paid for a guest house has been specifically dealt with in Section 30 and could not, therefore, be disallowed under Subsection (4) of Section 37. Dr. Pal lastly referred to two decisions of the Calcutta High Court in Kesoram Industries and Cotton Mills Ltd. vs. Commissioner of Income Tax, reported in (1991) 191 ITR 518 and Commissioner of Income Tax vs. Upper Ganges Sugar Mills Ltd., reported in (1994) 206 ITR 215, which have both taken the view that business expenditure for guest houses would not be allowable, having regard to the provisions of Section 37(4) of the Act. Dr. Pal submitted that apart from the said two decisions of the Calcutta High Court, the uniform decision of most of the High Courts appears to be that since the expenditure incurred for rents, rates, taxes, repairs and insurance of buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Reference has also been made to a decision of the Madras High Court in Commissioner of Income Tax vs. Mathurantakam Cooperative Sugar Mills Ltd., reported in (2000) 241 ITR 817; wherein certain expenses, which came within the mischief of Section 37(4) of the Act were disallowed. Other similar decisions of the Madras and the Rajasthan High Courts were also referred to. Mr. Dutta lastly referred to another decision of the Calcutta High Court in the case of Commissioner of Income Tax vs. Biswanath Tea Co. Ltd. (2003) 264 ITR 166 to which one of us (Hon'ble Altamas Kabir, J) was a party. In the said case the Calcutta High Court had occasion to consider the various decisions which have also been cited by Dr. Pal in the instant case and upon a consideration of the language of Section 37(4), it was held that having regard to the unambiguous bar incorporated under Sub-section (4) of Section 37, the benefits indicated in Sections 30 to 36 although, independent of Section 37, could not be related to the guest house maintained by the assessee. It was held that apart from the view taken in Upper Ganges Sugar Mills Ltd. and Kesoram Industries and Cotton Mills Ltd., any other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gours of the same, in our view, cannot be avoided in the instant case. The appeal is accordingly dismissed, but without any order as to costs. 9. So far as question No.3 is concerned, the same is covered by the decision of Hon'ble Supreme Court in case of Commissioner of Income-Tax V. Gujarat Narmada Vally Fertilizer Co. Ltd., reported in 281 ITR 297. The Income Tax Appellate Tribunal, Ahmedabad Bench B has referred the following questions under Section 256(1) of the Income Tax Act, 1961 (the Act) at the instance of Commissioner of Income Tax, Baroda. (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance u/s 32A of the I.T.Act on its cost of ₹ 63,54,058/-? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that tractortrailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance u/s 32A of the I.T.Act? The respondent assessee company is a Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of decision rendered by this Court in case of Commissioner of Income-Tax v. Gujarat State Fertilizers Co. Ltd., reported at 240 ITR 536. For the reasons stated in the aforesaid decision of this Court, question No.1 is answered in the affirmative i.e. in favour of the assessee and against revenue. The Tribunal was right in holding that the drainage and sewerage network was entitled to investment allowance under Section 32A of the Act on the investment cost of ₹ 63,54,058/-. In relation to the second question, the following decisions were cited on behalf of the assessee to submit that various courts have held that tractors - trailers used in the factory premises for lifting and carrying equipments and materials would be plant within the meaning of definition of the said term under Section 43(3) of the Act. It was further submitted that, for the purposes of ascertaining whether an item of plant or machinery is entitled to investment allowance or not, has to be tested by considering the function such plant or machinery performs during the conduct of the business of an assessee. (1) Shiv Construction Co. v. Commissioner of Income Tax, 165 ITR 160 (Guj.) (2) Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks containing practical knowhow kept in the office premises were entitled to investment allowance under Section 32A of the Act. After holding that books would be plant within the meaning of section 32A(1) of the Act, the Court held that: The word installed occurring in section 32A(1) would not necessarily mean that it should be fixed in a position, but the word is also used in the sense of induct or introduce or placing an apparatus in position for service or use as held by the Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165. The word installed would mean to place in position for service or use or to set up for service or use. The books would be installed when they would be placed for use in the premises in question It may be noted that similar view is expressed by the Bombay High Court in case of Commissioner of Income Tax v. Bharat Radiators P. Ltd., 239 ITR 608 in relation to patterns and dyes and electrical installations. Therefore, applying the aforesaid test, it is apparent that the tractor trailer was inducted or introduced in the business and was, therefore, installed for the purposes of the business of the assessee entitling the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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