TaxTMI 
TaxTMI 
1997 (2) TMI 494
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in section 37(4)(i) and could not be disallowed under section 37(4).” 3. The assessee claimed 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 g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issioner of Income-tax (Appeals) of Rs. 7,41,305 is also on the correct lines in the light of the decision in the case of Chase Bright Steel Ltd. (No. 1) [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, allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of such accommodation.” It is a sound rule of construction of a statute fairly established in Eng land, as far back as 1584, when Heydon’s case [1584] 3 Co. Rep 7a was decided that- “. . . 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hi and at two other places in India which may be either the capital of a State Government or any other place which is of direct importance to the business or profession. Banking companies are allowed to maintain guest-houses at Bombay to facilitate 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 enactmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndra and Mahindra Ltd. v. DCIT. The question on which we have differed is referred to the President under section 255(4) of the Income-tax Act, 1961, as under : “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 ?” 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses by resorting to the provisions contained in sections 37(3) and 37(4) of the Act, that are otherwise allowed with reference to the provisions contained in sections 30 and 31 of the Act and, therefore, the latter decisions could not be held to have overruled or reversed the earlier decisions. Learned 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 princ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture” means expenditure the nature of which is not described in sections 30 to 36. The said section 37 of the Act is in continuation to the provisions contained in sections 30 to 36 of the Act and has never been introduced with a view to restrict in the operation of the sections 30 to 36 of the Act or so to say override the provisions 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 . . . .” Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Normally, when any sub-section has an overriding effect on another sub-section of the same section, it would mean that the main sub-section has certain conditions or riders attached to it and that when applying the main sub-section, the impact of such overriding provision has to be given alongside. I shall deal with them in the following paragraphs. I shall initially, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assumption that the guest-house expenses are to be allowed with reference to section 37(1) of the Act or that the words ‘notwithstanding anything contained in sub-section (1)’ had removed whatever limitation of application of that section remained. The earlier presumption if existed, it would be a wrong one because, sections 32, 32A and 32AB clearly restrict the allowing of any additional depreciation, investment 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sections 30 to 36 of the Act and had laid down restriction to the allowance of deduction on guest house expenses. Earlier, I had observed that section 37 had been intended to allow such expenses that could not be identified and grouped in any of the sections 30 to 36 of the Act and that is why the law-makers had added the words “not being expenditure of the nature described in sections 30 to 36” after the words “any expenditure”. This 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 suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act. The court had also referred to the Karnataka High Court in the case of Sri Durga Enterprises (Brindhavan Hotel) v. ITO [1976] 102 ITR 745 and observed that the said decision had not taken the extreme view that guest-house refers to a place where guests of the assessee are received and entertained only gratuitously, on the contrary, it had been held that a guest-house refers to a place where the guests of an assessee are received and entertained gratuitously or at 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 com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....90 ?” The facts in this case as was noted were that the assessee had paid rent of a flat that was used partly for the residence of officers of the assessee and the remaining was used as its guest-house, on which expenditure of Rs. 10,760 on its maintenance, salary of cook, provisions, etc., was incurred. It was noted that the Assessing Officer had disallowed both the rent and the other expenses on the guest-house, that was confirmed by the first appellate authority by rejecting the contention that rent was allowable 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 h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124, to which one of us (Sugla J.) was a party. It was held in that case that sub-section (4) of section 37 no doubt was a non obstante clause but it was non obstante vis-a-vis sub-section (1) and sub-section (3) of section 37 only. That being so, if the expenditure or allowance was allowable under other sections of the Income-tax Act, the allowance could not be withdrawn or denied to the assessee because of the prohibitory provisions in section 37(4). On going through the decision, 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 la....