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TMI Blog1999 (9) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... question was referred to this Full Bench for consideration and decision. The assessee was a public limited company engaged in the production of white cement. For the assessment year 1985-86, the assessee met expenditure towards car repairs. The assessing authority included the motor car expenses and expenses for repairs of the cars in the aggregate expenses for the purpose of computing disallowance under section 37(3A) of the Income-tax Act (for short "the Act"). On appeal, the Commissioner of Income-tax (Appeals) held that the repairs will not fall within the mischief of section 37(3A) and allowed the claim of the assessee. On further appeal at the instance of the Revenue, the Tribunal upheld the order of the Commissioner of Income-tax and held that the repairs of the car will not fall within the mischief of section 37(3A) of the Act, The Tribunal upheld the order of the Commissioner of Income-tax following its earlier order in the assessee's own case for the assessment year 1984-85. At the instance of the Commissioner of Income-tax, the Appellate Tribunal referred the following question of law for the opinion of this court under section 256(1) of the Income-tax Act, 1961 : "W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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'." (emphasis supplied) A plain reading of sub-section (1) of section 37 would make it clear that the deductions referred to under sections 30 to 36 are excluded from the purview of section 37(1). Section 37(3A) reads : "Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent. of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'." (emphasis supplied) The relevant portion of sub-section (3B) reads : "The expenditure referred to in sub-section (3A) is that incurred on--- (i) advertisement, publicity and sales promotion ; or (ii) running and maintenance of aircraft and motor cars ; or (iii) payments made to hotels." The underlined por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, is dealt with under section 37(3A) of the Act. A consideration of the above provisions would make it clear that the non-obstante clause in sub-section (3A) would relate only to such of the expenditure referred to in section 37(1) and specified in section 37(3B). The expenditure in respect of which subsection (3A) of section 37 can be attracted, in the ordinary course, can only be those items of expenditure which fall under section 37(1)and section 37(1) takes in only such expenditure which does not fall within section 30 to section 36 and section 80VV and not being in the nature of capital expenditure or personal expenditure. The expenditure on repairs contemplated under section 31 is entirely different from the expenditure towards maintenance contemplated in section 37(3B). This aspect was considered by the Gauhati High Court in George Wiiliamson (Assam) Ltd. v. CIT [1997] 223 ITR 203. That was a case where the assessee-company claimed deduction of some amount towards cost of repairs of motor vehicle. The assessing authority disallowed the claim and that was confirmed by the appellate authority as well as by the Tribunal. There a Division Bench of the High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the following items of expenditure : (i) advertisement, publicity and sales promotion, (ii) running and maintenance of aircrafts and motor cars, and (iii) payment made to hotels. Sub-sections (3C) and (3D) also deal with some of the items of expenditure covered by sub-section (3B). Sub-section (4) deals with further restrictions on the allowance of expenditure on maintenance of residential accommodation in the nature of guest house. Sub-section (5) clarifies what is accommodation in the nature of guest house. On going through the above provisions, it is clear that the expenditure covered by all the sub-sections of section 37 are items of expenditure not covered by sections 30 to 36. Hence, the items of expenditure covered by sections 30 to 36 are different from the items of expenditure covered by the different sub-sections of section 37. The above circumstances also would make it clear that the non-obstante clause in section 37(3A) applies only to those of the items covered by section 37(1) and it cannot have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 56 of the Act. Learned counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1998] 232 ITR 530, following the decisions of the High Courts of Bombay and Calcutta in the decisions cited supra held that the repairs of car and the premium paid towards insurance are to be deducted under section 31 of the Act and such expenditure shall not come within the mischief of section 37(3A) of the Act. The above decisions were pronounced on January 10, 1997 without noticing the earlier decisions of another Bench of this court in CIT v. Navodaya [1997] 225 ITR 399 and CIT v. Travancore Cements Ltd. [1999] 240 ITR 825 (Appex) pronounced in September November, 1996. In CIT v. Navodaya [1997] 225 ITR 399 (Ker) and in CIT v. Travancore Cement Ltd. [1999] 240 ITR 825 (Appex), the assessee in the present case, a Division Bench of this court took the view that the expenditure on repairs of car also would come within the mischief of section 37(3A) of the Act. In CIT v. Navodaya [1997] 225 ITR 399 (Ker), it was held : "Each of the subsequent sub-sections of section 37 is prefixed by the same non-obstante clause : 'Notwithstanding anything contained in subsection (1).' These sub-sections have to be read de hors the statutory provisions of section 37(1). Each one of the sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure of a capital nature or a claim of the assessee under sub-section (3) of section 57 of the Income-tax Act can be allowed. Therein it was held : "It is obvious from the provisions of sub-section (3) quoted above that it contemplates an altogether separate and distinct head of deduction, namely, expenditure on advertisement. It is further clear that this deduction on account of expenditure on advertisement is admissible 'notwithstanding anything contained in sub-section (1)'. The use of the non-obstante clause in sub-section (3) clearly excludes the considerations which are contemplated by sub-section (1) of section 37. It, therefore, follows that if once it is found that a particular deduction can be claimed as on account of expenditure on advertisement the said deduction squarely falls within sub-section (3) and that being so the question whether the said expenditure is of capital nature or of revenue- nature falls wholly out of consideration. Deduction on account of expenditure on advertisement is qua advertisement and not qua its revenue or capital nature. The Tribunal seems to have missed this aspect of the matter. We, therefore, find that this expenditure falling under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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