R.P. GARG, A.M. ORDER These six appeals three by assessee and three by Revenue, are against orders of CIT (A) which relate to asst. yrs. 19 77-78 to 19 79- 80. As most of points involved in these appeals are common, they were heard together and are being disposed of by this common order, for sake of convenience. 2. first common point being ground No. 1 in each of appeals by assessee is against assessment of income from subletting of property as 'Income from other sources'. assessee claimed it as assessable under head 'Profits and gains business or profession. assessee is shipping consultant and supervises repairs of ships. It is not shipping company as such nor is it manufacturing company. It had taken business premises on rent in 19 68. It was under monthly tenancy. part of this premises, i.e., 10 per cent was sublet for first time in 19 75 to connected concern, namely, ABS World wide Tech. Services (I) (P) Ltd. on monthly rent of Rs. 500 per month. In asst. yrs. 19 78-79 and 19 79-80, rend was increased to Rs. 1,000 per month because of additional space given to them and additional charge of expenses. assessee claimed net rent paid by it, i.e., by reducing recipe of rent. In asst. yr. 19 77-78, ITO treated receipt of Rs. 6,000 as income from other sources as in his opinion, income was from subletting and income of subletting has always been assessed as other sources. After allowing 10 per cent of expenses on electricity calculated at Rs. 1,804, he brought balance of Rs. 4,160 to tax under head 'Income from other sources'. CIT (A) has confirmed assessment of this income under head 'Income from other sources'. He, however, allowed Rs. 4,357 being 10 per cent of rent paid by assessee, besides electricity expenses of Rs. 1,804 allowed by ITO. Similarly in asst. yrs. 19 78-79 and 19 79-80, proportionate expenses on rent and electricity were allowed and balance only was brought to tax under head 'Income from other sources'. There is no dispute about allowance of expenditure insofar as asst. yrs. 19 77-78 and 19 78-79 are concerned. Department has, however, challenged allowance of proportionate expenses of Rs. 9,255 in asst. yr. 19 79-80 being ground No. 1 in IT Appeal No. 6165 (Bom) of 19 83. 3. Mr. S. E. Dastur, learned counsel of assessee submitted that impugned premises was obtained on rent as commercial asset and subletting of part thereof to connected company was commercial exploitation, income therefrom has to be nothing but business income. He placed reliance on two decisions of Delhi High Court in Addl. CIT vs. Rajindra Flour & Allied Industries (P) Ltd. ( 19 81) 128 ITR 402 (Del) and Snam Progetti S. P. A. vs. Addl. CIT ( 19 81) 132 ITR 70 (Del). learned Departmental Representative Shri Tej Prakash, on other hand, submitted that issue should be decided in favour of Department, in view of Bombay High Court decision in Parekh Traders vs. CIT ( 19 83) 37 CTR (Bom) 4 : ( 19 84) 150 ITR 310 (Bom). 4 . We have considered rival submissions. In our opinion, matter can be decided in simple way without going into case laws relied upon by parties. premises was taken on rent for business purposes. By letting out business premises, business expenditure of company on rent was reduced to extent of rent received by assessee-company. receipt, therefore, should not be separately assessed under head 'Income from other sources'. In fact, assessee had claimed only net expenses of rent as reduced by receipt. We, therefore, direct ITO to recompute total income of assessee by reversing items of receipts and expenditure relating to this premises and consider claim of assessee as per figures given in its profit and loss account. This will dispose of Departmental ground in appeal for asst. yr. 19 79-80 also. 5. next item assessed under head 'Income from other sources' is interest income from deposits in all three years. ITO held that since fixed deposits were not commercial asset, interest received thereon could not be said to be yield of commercial asset. assessee has received certain funds in 19 75 from its New York office to enable it to purchase premises for accommodation of their surveyors. Till date they could not get suitable place money was deposited in fixed deposits. assessee could not get any suitable accommodation as contemplated. Therefore, money was returned to New York office in 19 78. In these circumstances, CIT (A) held that interest income was yield of exploitation of funds brought for commercial purposes. We agree with CIT (A) that funds brought from New York office were for commercial purposes and its retention in fixed deposits till their purposes was achieved or their return would be income from business. Therefore, ground No. 1 in each of asst. yrs. 19 77-78 and 19 78-79 and ground No. 2 in asst. yr. 19 79-80 in appeals by Revenue are dismissed. 6 . next substantial dispute in assessee's appeal as well as in Departmental appeal is concerning with applicability of s. 44C of IT Act, 19 61 ('the Act'). In assessee's appeal for asst. yr. 19 77-78 it has been challenged that provisions of s. 44C do not apply. To elaborate argument Shri Dastur submitted that this year being loss year, there was no total income and, therefore, cl. (a) of s. 44C providing that amount equal to 5 per cent of adjusted total income does not apply. There are three alternative conditions in s. 44C and excess of least amount computed under each of three conditions is not to be allowed. Relying on decision of Special Bench of Tribunal in case of IAC vs. Goodricke Group Ltd. ( 19 85) 12 ITD 1 (Cal), Mr. Dastur contended that since cl. (a) does not apply in this case, whole s. 44C would not be applicable and, consequently, no disallowance could be made. Decision of Supreme Court in CIT vs. Official Liquidator, Palai Central Bank Ltd. ( 19 84) 43 CTR (SC) 164 : ( 19 84) 150 ITR 539 (SC) is also relied upon in this behalf. He further stated that object of s. 44C is to allow something and not to deny and, therefore, interpretation placed by Department is contrary to this object. learned Departmental Representative, on other hand, relied upon orders of ITO and CIT (A) and supported their decisions with help of Supreme Court decision in Karimtharuvi Tea Estate Ltd. vs. State of Kerala ( 19 66) 60 ITR 262 (SC). 7. We have carefully considered rival submissions. Sec. 44C relevant for purposes of this controversy reads as under : "Notwithstanding anything to contrary contained in ss. 28 to 43A, in case of assessee, being non-resident, no allowance shall be made in computing income chargeable under head 'Profits and gains of business o r profession', in respect of so much of expenditure in nature of head office expenditure as is in excess of amount computed as hereunder, namely :- (a) amount equal to five per cent of adjusted total income; or (b) amount equal to average head office expenditure; or (c) amount of so much of expenditure in nature of head office expenditure incurred by assessee as is attributable to business or profession of assessee in India, whichever is least : Provided that in case where adjusted total income of assessee is loss, amount under cl. (a) shall be computed at rate of five per cent of average adjusted total income of assessee. Explanation : For purposes of this section - (i) 'adjusted total income' means total income computed in accordance with provisions of this Act, without giving effect to allowance referred to in this section or in sub-s. (2) of s. 32 or deduction referred to in s. 32A or s. 33 or s. 33A or first proviso to cl. (ix) of sub-s. (1) of s. 36 or any loss carried forward under sub-s. (1) of s. 72 or sub-s. (2) of s. 73 or sub-s. (1) of s. 74 or sub-s. (3) of s. 74A or deductions under Chapter VI-A; (ii) 'average adjusted total income' means, - (a) in case where total income of assessee is assessable for e c h of three assessment years immediately preceding relevant assessment year, one-third of aggregate amount of adjusted total income in respect of previous years relevant to aforesaid three assessment years; (b) in case where total income of assessee is assessable only for two of aforesaid three assessment years, one-half of aggregate amount o f adjusted total income in respect of previous years relevant to aforesaid two assessment years; (c) in case where total income of assessable only for one of aforesaid three assessment years, amount of adjusted total income in respect of previous year relevant to that assessment year;" limit in cl. (a) is equal to five per cent of adjusted total income. adjusted total income is defined in Expln. (i) as extracted above. Proviso to s. 44C provides alternate computation of five per cent of average adjusted total income as against of 'adjusted total income' in case latter is loss (sic). average adjusted total income as defined in Expln. (ii) means one-third of three years aggregate adjusted total income of preceding three years or half of two years or equivalent of preceding year as case may be, if total income assessed in preceding year was of less than three years. Reading proviso to s. 44C this much is clear that adjusted total income may be loss also. It is not necessarily positive income as argued by Mr. Dastur. proviso, in our opinion, only gives further concession to those assessees whose adjusted total income in particular year happens to be loss. This clause does not say that there has to be positive income in preceding years. It only says that 'where total income of assessee is assessable'. These words in our view only connote existence of company as assessee in any or all three years. If company was assessee in these years total income may be loss or profit. If average adjusted total income is also loss which it is in present case, five per cent would, in our opinion, be nil and, therefore, no head office expenses shall be allowed to it. 8 . cases relied upon by Mr. Dastur are not applicable to facts of case. case of Special Bench was no doubt case under s. 44C wherein it was held that since cl. (c) was not applicable non obstante provision of s. 44C would have no application for disallowance of head office expenses. But close look of case would show that emphasis was not on fact that particular clause does not apply in particular year but it was on fact that that particular clause could not conceivably by applied in particular case. following extract of that decision clarifies position : "... In view of above observations of Supreme Court, we are inclined to hold that if any one or more of computations under cl. (a), (b) or (c) of s. 44C is not conceivable in particular case, it will have to be held than non obstante provisions contemplating disallowance of 'head office expenditure' under s. 44C does not apply." (p. 8) 9. It is not case in this appeal before us; may be because of losses it did not apply in this year but that does not mean that cl. (a) of s. 44C is not conceivably applicable in case of assessee. It could not be said that assessee would never have any adjusted total income. fact that there is no dispute in asst. yrs. 19 78-79 and 19 79-80 goes to prove that there was presumably adjusted income in those years and cl. (a) would, therefore, be workable. In our opinion, therefore, this case could have helped assessee only when there is conceivably no possibility of any computation under cl. (a) of s. 44C and not in case where it could not be worked out in year or two. 10. case of Supreme Court relied upon by learned counsel of assessee is again on theory of 'conceivability'. This was case under Super Profits Tax Act, 19 63, which was held not applicable to case where liquidator has been appointed in case of company. It was because when liquidator is appointed, it is not conceivable that company could have any capital and, therefore, it was held by their Lordships of Supreme Court that company was not chargeable to super profit tax. This ground in assessee's appeal is, therefore, dismissed. 11. We now come to merits of disallowable items under s. 44C. In assessee's appeal for asst. yr. 19 77-78, there is no dispute regarding quantum of expenses. However, in Departmental appeal for asst. yr. 19 77- 78 ground No. 4 is against allowance of travelling expenses of Rs. 64,082 and 50 per cent of miscellaneous expenses being Rs. 8,321 Ground No. 5 in Departmental appeal is against allowance of plan approval expenses of Rs. 3,10,112. travelling expenses are of Mr. S. G. Schaeffer which were specifically incurred on account of Indian branch. We agree that they could not be in nature of head office expenses. miscellaneous expenses are of general administration expenses. They included publications and rule books, etc., which were distributed to various clients in India or shipbuilders. There appears to be no justification for treating 50 per cent of these miscellaneous expenses as attributable to head office expenses under s. 44C. As regards plan approval, engineering expenses of Rs. 3,10,112 we have gone through details filed. These expenses were incurred for specific technical services of nature of approval of plan for ships being constructed in India, reviewing survey reports, covering ships being constructed at Indian Shipyards, approval of designs, tonnage admeasurements and issuance of tonnage certificates, reviewing test reports, etc. These expenses were incurred not only at head office in New York but also in other offices like London, Geneva, Hamburg. We, therefore, confirm order of CIT (A) holding that these expenses were not head office expenses for purpose of s. 44C. In view of this finding, we reject assessee's ground No. 4 in asst. yrs. 19 77-78 which was taken alternatively as matter of abundant caution it was relevant only when we would have held that expenses disputed in Departmental appeal were head office. This ground contemplates full allowance of head office expenses up to 1st June, 19 76, date when s. 44C was introduced. Since we have rejected Departmental appeal, this ground becomes infructuous. 12. In asst. yr. 19 78-79 nature of expenses is more or less same as in asst. yr. 19 77-78. amount of travelling expenses is $15,310, miscellaneous expenses Rs. 1,858 and on plan approval Rs. 6,33,588. For reasons discussed in earlier paragraph for asst. yr. 19 77-78, we hold that these expenses were not head office expense and confirm order of CIT (A). There is one another item of expenditure of Rs. 9,120 incurred on printing and stationery in this year. This expenses was disallowed because of absence of proper proof of recovery of same from clients. Like miscellaneous expenses, these expenses were also for specific jobs and, therefore, could not be treated in nature of head office expenses under s. 44C. 1 3 . assessee has challenged treatment of $ 926 on travelling treated as head office expenses. disallowance is on ground that these expenses were not for any specific job in India. $ 872 were expenses on air transportation of Mr. N. Gandhi, accountant of head office. visit was regarding accounts administration. balance $ 54 was on miscellaneous travelling by New York office. assessee has not been able to prove that these expenses were not head office expenses. We, therefore, confirm action of authorities below treating them as head office expenses. 14. In asst. yr. 19 79-80 also both assessee and Department are in appeal. In assessee's appeal, dispute is regarding Rs. 39,015 on travelling expenses and Rs. 15,476 on legal expenses. In Department's appeal, objection is for following expenses : Rs. (i) Travelling expenses 15,603 (ii) Insurance 6,605 (iii) Printing and stationery 7,278 (iv) Miscellaneous 1,912 (v) Fees for plan approval 2,70,138 CIT(A) had proceeded with treatment of these expenses on principle that expenses relating specifically to Indian branch are not in nature of head office under s. 44C, as they have nothing to do with general administration or executive functions of assessee's head office. We do not think that principle on which CIT (A) had proceeded was in any way wrong. He is perfectly justified in this approach. We have gone through details and find that treatment of expenses in assessee's appeal as head office expenses and inclusion of expenses disputed in Department's appeal is correct on fact. Both appeals by assessee as well as by Department are rejected on these points. 15. next dispute in assessee's appeal for asst. yrs. 19 78-79 and 19 79-80 is concerning claim of depreciation. assessee claimed that unabsorbed depreciation of earlier years should be given preference over current year's depreciation and latter could have been allowed to be carried forward. This dispute has since been settled by decision of Supreme Court in CIT vs. Mother India Refrigeration Industries (P) Ltd. ( 19 85) 48 CTR (SC) 176 : ( 19 85) 155 ITR 711 (SC) against assessee, this ground in both appeals for asst. yrs. 19 78-79 and 19 79-80 is, therefore, rejected. 15.1 There is one more ground in assessee's appeal for asst. yr. 19 79-80. This is against disallowance under r. 6D of IT Rules, 19 62. expenses on travelling according to assessee, were incurred in context of their business and, therefore, it was contended that nothing could be disallowed under s. 37(3) of Act r/w r. 6D. Department's appeal is against direction of CIT (A) to calculate disallowance of expenses on basis of 'per person' as against 'per trip' under r. 6D. disallowance per trip basis worked out by ITO is Rs. 25,125 whereas it works out to Rs. 24,715 on per person basis. Both points are covered by Special Bench decision of Tribunal. case of Sundaram Finance Ltd. vs. IAC ( 19 84) 7 ITD 845 (Mad) (SB) upheld applicability of r. 6D even in cases where travelling expenses were otherwise allowble as business expenditure and case of Blackie Sons (Inida) Ltd. (IT Appeal Nos. 706-707 (Bom) (SB) of 19 75-76 dt. 20th Oct., 19 76) upheld calculation of per person basis. We, therefore, reject this ground in both appeals by assessee as well as by Department. 16. In Departmental appeal for three years ground Nos. 2 and 3 each in asst. yrs. 19 77-78 and 19 78-79 and ground Nos. 3 and 4 in asst. yr. 19 79-80 dispute is against decision of CIT (A) holding that medical reimbursement of employees and repairs to flats occupied by employees were neither perquisite nor salary for purposes of disallowance under s. 40A (5) of Act. Department's reliance is on Kerala High Court decisions in CIT vs. Commonwealth Trust Ltd. ( 19 82) 135 ITR 19 (FB), CIT vs. Forbes, Ewart & Figgis (P) Ltd. ( 19 84) 24 CTR (Ker) 87 (FB) : ( 19 82) 138 ITR 1 (FB) and Travancore Tea Estate Co. Ltd. vs. CIT ( 19 85) 49 CTR (Ker) 386 : ( 19 85) 154 ITR 745. However, in view of Special Bench decision in case of Blackie Sons (India) Ltd. (supra) and Bombay High Court decision in case of CIT vs. Indokem (P) Ltd. ( 19 81) 22 CTR (Bom) 268 (Bom) : ( 19 81) 132 ITR 125, we hold that medical reimbursement cannot be treated as part of perquisites. But in view of Special Bench decision in case of Glaxo of perquisites. But in view of Special Bench decision in case of Glaxo Laboratories India Ltd. vs. Second ITO ( 19 86) 18 ITD 226 (Bom), we do not agree with CIT (A) that medical reimbursement would not be even part of salary. To this extent, we reverse decision of CIT (A). As regards repairs to flat, we agree with CIT (A) that expenses neither resulted in any perquisite nor it could be treated as part of salary. repairs are carried out by employer for upkeep of flats. It does not add anything to enjoyment of employees which could be termed as benefit, amenity or perquisite or even salary. We, therefore, reject Departmental ground on this point. 17. In Department's appeal for asst. yr. 19 79-80 there are two more grounds which are not in other appeals. First of that (ground No. 8) is against allowing depreciation disallowed by ITO in respect of furniture and fixtures, air conditioner and electrical installation installed of Beach House, Madh Island where employees of assessee stay during holidays. CIT (A) following his order in curlier years. allowed claim of depreciation. In earlier year, i.e. asst. yr. 19 77-78 CIT (A) had followed Madras High Court decision in CIT vs. Aruna Sugars Ltd. ( 19 80) 123 ITR 6 19 (Mad) and 130 ITR 361 (sic) and noticed fact that no person other than employees stay at this Beach House. He held that ITO was not justified in treating premises in nature of guest house. decision in asst. yr. 19 77-78 was followed in asst. yr. 19 78-79 and in this appeal for asst. yrs. 19 79-80 also. No appeal was filed by Department for asst. yr. 19 77-78 and 19 78-79 but since there was amendment in provision by insertion of sub-s. (5) in s. 37 w.e.f. 1st April, 19 79 it was contensted by Department in this asst. yr. 19 79-80. Two defences were put forward by Mr. Dastur before us, one being that s. 37(5) applies only to guest house and not to all premises. In present case, Beach house is sort of holiday home where only employees of assessee stay. premises to be guest house must be to house guests and employees could not be termed as guests. second defence of Mr. Dastur is that non obstinate provisions contained in s. 37(4) did not prohibit claim of depreciation under s. 32 of Act even if Beach house is treated as guest-house. To understand controversy it would be appropriate to look at provisions of ss. 37(4) and 37(5). "By s. 5 any accommodation whether maintained, hired, reserved or otherwise arranged by assessee for purpose of providing lodging or boarding and lodging to any person on tour or visit to place at which such accommodation is situated, is accommodation in nature of guest house within meaning of sub-s. (4)." It is irrespective of any nomenclature and includes boarding and lodging to employees and directors of company. Mr. Dastur contended that boarding and lodging contemplated under this sub section is to employees who are on tour or visit which according to him, could mean only for purposes of business and not when employee was on personal trip. It is admitted by Mr. Dastur that proviso to s. 37(4) does not apply in this case because there were less than 100 wholetime employees. We do not agree with Mr. Dastur that sub-s. (5) does not apply in this case. It enropes lodging or boarding and lodging to all persons including employees of company. Such persons must be on tour or visit to that place. If contention of Mr. Dastur is accepted, then sub-s. (5) could never apply to outsiders because their tour or visit would not be for purposes of assessee's business. Tour may be susceptible of business nature alone but visit in our opinion, could, cover both personal as well as business purposes. We, therefore, hold that by virtue of sub-s. (5) Beach House accommodation is in nature of guest- house for purposes of s. 37(4). 18. Now we come to second aspect of matter, namely, even if Beach House is guest-house, depreciation on any asset therein could still be not disallowed. non obstinate provision clause in sub s. (4) is only with respect to anything contained in sub s. (1) or sub s. (3) of s. 37. Neither of provisions contained in sub-s. (1) or (3) deal with depreciation allowance. depreciation claimed is provided in s. 32 and this section is not subject to provisions of s. 37(4) even though cl. (ii) of s. 37(4) prohibits allowance of depreciation on asset in guest-house. result is that whereas s. 32 allows depreciation and s. 37(4) (ii) prohibits same. Neither of two provisions are subject to each other. In such situation, in our opinion, provisionbeneficial to assessee must be followed. In other. words, depreciation has to be allowed under s. 32 there being no dispute for maintenance of guests-house was for proposes of business. We, therefore, uphold decision of CIT (A) allowing depreciation though on two different grounds. 1 9 . last ground in Departmental appeal for asst. yr. 19 79-80 being ground No. 9 is against deletion of addition of Rs. 9,425 made by ITO under s. 37(1) r/w s. 80VV, of Act. facts are that sum of Rs. 13,000 was paid by assessee to Ferguson & Co. C. A. Out of this Rs. 13,000 sum of Rs. 3,575 alone was for expenses on representation before authorities, balance of Rs. 9,425 was for other matters. CIT (A) disposed of matter in light of Tribunals decision in case of International General Electric Co. (I) Ltd. vs. ITO (IT Appeal No. 24 (Bom) of 19 74, dt. 5th Oct., 19 79). After having gone through details and orders of authorities, below, we are of opinion that CIT (A) was right in holding that Rs. 9,425 was not subject to provision of s. 80VV but were allowable under s. 37 outright. 20. In result, all six appeals are allowed in part. *** AMERICAN BUREAU OF SHIPPING v. INCOME TAX OFFICER