TaxTMI 
TaxTMI 
2002 (10) TMI 236
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...., the following deductions shall be allowed- (a) where the premises are occupied by the assessee- (i) as a tenant, the rent paid for such premises, and further 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 t....
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....ctive check on lavish expenditure on maintenance of guest-house, it is proposed to disallow altogether expenditure incurred after28-2-1970on the maintenance of guest houses other than "holiday homes". In computing the profits and gains of business or profession. This 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 o....
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....essee should be adopted. 6. The plea, in other words, was that wherever the legislature desired any inclusion or exclusion it had indicated so, but the position in sections under consideration was quite different. He, however, accepted that there was an apparent conflict in the relevant provisions. 7. In support of his arguments, the learned counsel placed reliance on a string 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 &....
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....1995] 54 ITD 108 at 112 (Delhi). 9. In support of the Revenue's case, the learned Departmental Representative relied on: (i) Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.); (ii) CIT v. Upper Ganges Sugar Mills Ltd. [1994] 206 ITR 215 4 (Cal.); (iii) CIT v. Arvind Mills Ltd. [2001] 248 ITR 187 (Guj.); (iv) CIT v. Ocean Carriers (P.) Ltd. [1995] 211 ITR 357 (Bom.); (v) United Catalysts India Ltd. v. CIT [1998] 229 ITR 233 (Ker.); (vi) Trade Links Ltd's case; (vii) Kanoria Chemicals & Industries Ltd. v. CIT [1995] 78 Taxman 455 (Cal.); (viii) CIT v. Mathurantakam Co-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 C....
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....ation (ii) to section 37(4) stated that expenditure incurred on maintenance of a guest-house would include rent paid in respect of such accommodation. Before we come to the legal propositions highlighted before us by both the parties, we find it appropriate to detail the views expressed by various Hon'ble High Courts as also different Benches of the Tribunal as follows. 13. Hon'ble Gujarat High Court: The decision in Maharana Mills Ltd.'s case has gone in favour of the assessee and the following observations at page 974 are relevant:-- "As can be seen from the questions, question Nos. 1 and 2 pertain to the same expenditure of Rs. 69,076 being the expenses incurred on current repairs of the assessee's guest house at Porbandar. What is contended by learned counsel 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 Dis....
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.... not be allowable. The wording of sub-section (4) of section 37 would make it clear that the expenditure referred to in sub-section (4) of section 37 was not for the "maintenance work" of the guest-house, but on the very maintenance of a guest-house meaning for "keeping" the guest-house. Expenses incurred for repair would come within expenses for keeping a guest house. Therefore, the Tribunal was in error in holding that the amount spent on repairs would not come within the ambit of section 37(4)." 15. It is the stand of the assessee's counsel that the aforesaid view has been overruled by a decision of the Full Bench in Travancore Cements Ltd.'s case. The following observations at page 821 of the report are referred to:-- "Section 37 is a "general" provision regarding the expenditure not covered by sections 30 to 36 and section 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 (2....
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.... of any expenditure incurred afterFebruary 28, 1970, on the maintenance of any residential accommodation in the nature of a guest-house. No allowance of depreciation is also permissible for such guest-house or any assets in such guest-house. The prohibition against the allowance of maintenance expenditure of the guest-house is unmitigated. The only relaxation is in respect of holiday homes meant for whole-time employees for their exclusive use while on leave; there is no other relaxation. Where, however, the assessee collects any charge from the boarders, such charges have to reduce the amount of disallowance." 17. Hon'ble Bombay High Court: Century Spg. & Mfg. Co. Ltd.'s case and Chase Bright Steel Ltd. (No. 1)'s case are in favour of the assessee whereas in Ocean Carriers (P.) Ltd.'s case is in favour of the Revenue. It was contended by the learned counsel that Their Lordships 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....
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....d on the guests staying in the guest house cannot be regarded as an expenditure on the maintenance of any residential accommodation in the nature of the guest house is not sustainable. As already observed, it will include not only the maintenance expenditure of the guest house, but extend to the expenditure incurred towards the provisions for food, drinks and refreshment and other amenities provided to the guests staying in the guest house." Decisions of the Tribunal: 19. There are decisions of various Benches both ways as is apparent from those cited before us by the parties, but those in favour have proceeded primarily on the proposition that section 37(4) overrides only section 37(1) and 37(3) leaving untouched the expenditure detailed in sections 30 to 36. In none of the aforesaid decisions the legislative intent has been highlighted and as already stated earlier, the intention was to curb the lavish expenditure on the 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 ....
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....f statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the Legislature". Therefore, when two interpretations are feasible the court will prefer that which advances the remedy and suppresses the mischief as the Legislature envisioned." Rule in Heydon's case; purposive construction: mischief rule: "When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words 'of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)' is the rule laid down in Heydon's case which has now attained the status of a classic. The rule which is also known as 'purposive construction' or 'mischief rule', enables consideration of four matters in construing an Act: (i) What was the law before the making of the Act, (ii) What was 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....
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.... derogant. If a special provision is made on a certain matter, that matter is excluded from the general provision." 22. By applying the aforesaid Rules of Interpretation it becomes quite apparent that section 37(4) is a specific provision whereas sections 30, 31 and 32 are general provisions and former overrides the latter. In the decisions of the Hon'ble High Courts as also some of the Tribunal, more so, two of the Delhi Benches relied upon by the learned Departmental Representative not only has the legislative intent been highlighted, but the question of interpretation has also been dealt with and discussed at length. As already discussed earlier not only is the opinion amongst the Hon'ble High Courts divided, but even in the same Hon'ble High Court, different views have been expressed at different points of time. 23. The Delhi Bench of the Tribunal in the case of Mohan Meakin Breweries observed as under:-- "Sub-section (4) which was enacted several years after sub-section (3), specifically 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 ....
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....der to place a Check on lavish expenditure on maintenance of a guest house, section 37(4) was inserted by the Finance Act, 1970. This sub-section provided for disallowance of expenditure incurred after28-2-1970on the maintenance of a guest house other than holiday homes in computing the profits and gains of business or profession. Subsequently, section 37(5) was inserted by the Finance Act, 1983 with retrospective effect from1-4-1979. The aforesaid section contained a definition of a guest house. A reading of the relevant statutory provisions shows that there is an apparent conflict between the provisions as contained in sections 30, 31 and 32 vis-a-vis section 37(3), (4) and (5) of the Act. There are two provisions, one whereby the expenditure relating to rent and depreciation is allowable and the other where it has been specifically disallowed as is the case in sub-section (4) and sub-section (5) of section 37. Sub-section (4)(ii) of section 37 clearly makes a reference to disallowance in respect of depreciation of any building used as a guest house or depreciation of any asset in a guest house. The Explanation to the aforesaid sub-section makes a specific reference to rent pa....