TaxTMI 
TaxTMI 
2015 (1) TMI 1025
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....micals including urea, ammonium sulphate, dye-ammonium phosphate, caprolactum. During the year Coast DAP Project at Sikka has started production of DAP, which is a chemical fertilizer, various details have been furnished at the time of return and subsequently in course of assessment proceedings. On going through the details filed the points of Rental Income, Guest House 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 Rs. 10,28,33,600/-, whereas the Assessing Officer has assessed total income of Rs. 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 sid....
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....ount of reference made thereto under Section 37 of the Act which is important for our purpose. In order to appreciate the arguments advanced on behalf of the appellant, the provisions of Section 37 as they stood during the relevant assessment year are set out herein below:- "37. General. (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 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 Rs. 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 Rs. 5,000/- whichever is higher; ii) On the next Rs. 40,00,000/- of the profi....
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....f days in the previous year; (b) in any other case- i) in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under subsection (1); ii) in respect of such 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 doubt....
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....remuneration paid to employees of the assessee engaged in one or more of the said activities; c) Expenditure on running and maintenance of aircraft and motor cars shall include i) expenditure incurred 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....
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.... director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guesthouse within the meaning of 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 ....
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....as Section 37 deals with all other expenditure, not being expenditure described in Sections 30 to 36 of the Act, subject to the conditions: (a) the expenditure must not be of a capital expenditure; (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 a....
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....ression "repairs" as used in Section 37 and the expression "maintenance" as used in Subsection (3A) and (3B) of Section 37. Based on such distinction, it was held that the nonobstante clause in Section 37 (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 fro....
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.... Mfg. And Calico Printing Co. Ltd. (supra), it was urged that expenditure incurred towards rent and maintenance of guest houses after 28th February 1970, was not deductible in view of Section 37(4) of the 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 ....
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....ection 37. It is another matter that at a subsequent point of time, the Legislature felt it necessary to omit the said provisions, but they were in the statute book at the relevant point of time. The rigours 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 Rs. 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 tractortrai....
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....respondent assessee Shri Manish J. Shah is present and has made his submissions in support of the order made by the Tribunal. In relation to question No.1, the issue stands concluded by ratio 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 Rs. 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 ....
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....reated to be a plant, is required to be answered. In the case of Commissioner of Income Tax v. Thyristors Controls Pvt. Ltd., 207 ITR 317, this Court was called upon to decide whether books 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....