Commissioner of Income-tax-I v. Gujarat State Fertilizer Co. Ltd
[Citation -2014-LL-1128-140]

Citation 2014-LL-1128-140
Appellant Name Commissioner of Income-tax-I
Respondent Name Gujarat State Fertilizer Co. Ltd.
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 28/11/2014
Judgment View Judgment
Keyword Tags entertainment expenditure • residential accommodation • provision for gratuity • benefit of deduction • business expenditure • investment allowance • capital expenditure • question of law • sales promotion • obsolete stock • rental income • hire charges • total income • remuneration • guest house
Bot Summary: As will be apparent from a reading of Sub section of Section 37 of the Act, any expenditure not being expenditure of the nature described in Sections 30 to 36, inter Page 13 of 28 O/TAXAP/369/2002 JUDGMENT alia, allowed and expended wholly and exclusively for the purposes of business or profession, is to be allowed in computing the income chargeable under the heading profits and gains of business or profession. Sub section, which was inserted in the statute book with effect from 1st April, 1970, is specific and provides that notwithstanding anything contained in Sub section and Sub section no allowance shall be made in respect of any expenditure incurred by the assessee after 28th February, 1970, on the maintenance of any residential accommodation in the nature of guest house and no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in the guest house. Dr. Debi Prasad Pal, learned senior counsel, appearing on behalf of the company, urged that Sections 30 to 32 deal with specific types of expenditure which are allowable in terms of the said provisions, whereas Section 37 deals with all other expenditure, not being expenditure described in Sections 30 to 36 of the Act, subject to the conditions: the expenditure must not be of a capital expenditure; expenditure must not be of a personal nature; and the expenditure must be incurred wholly and exclusively for the purposes of business. Appearing for the Revenue, Mr. Rajeev Dutta, learned senior counsel contended that the provisions of Section 37 would have to be read in isolation from the provisions of Sections 30 to 36 of the Act as contemplated by the non obstante clause in Sub section of Section 37. 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 Page 19 of 28 O/TAXAP/369/2002 JUDGMENT section of Section 37, the benefits indicated in Sections 30 to 36 although, independent of Section 37, could not be related to the guest house maintained by the assessee. The only question which we are called upon to consider in the instant case is whether the expression 'premises and buildings' referred to in Sections 30 and 32 and used for the purposes of the business or profession would include within its scope and ambit the expression 'residential accommodation including any accommodation in the nature of guest house' used in Sub sections, and of Section 37 of the Act. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession, then it would not have felt the need to amend the provisions of Section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in Sub Page 20 of 28 O/TAXAP/369/2002 JUDGMENT section of Section 37 and the provisions of Sections 31 and 32 would have been sufficient for the said purpose.


O/TAXAP/369/2002 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 369 of 2002 With TAX APPEAL NO. 384 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to civil judge? COMMISSIONER OF INCOME TAX-I .Appellant(s) Versus GUJARAT STATE FERTILIZER CO. LTD. Opponent(s) Appearance: MR KM PARIKH, ADVOCATE for Appellant(s) No. 1 MR JP SHAH, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 28 O/TAXAP/369/2002 JUDGMENT Date : 28/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Tax Appeal No.369 of 2002 u/s.260A of Income tax Act, 1961 is filed against judgment and order of Income Tax Appellate Tribunal passed in ITA Nos.487 to 489/Ahd/1994. 2. Tax Appeal No.384 of 2000 u/s.260A of Income tax Act, 1961 is filed against judgment and order of Income Tax Appellate Tribunal passed in ITA No.623/Ahd/1991. 3. facts of both appeals are identical and therefore, both these appeals are taken up for hearing and decided together as they raised common question of law. 4. As question of law as well as facts of both these appeals are same, we discuss only facts of Tax Appeal No.384 of 2000. assessee company is manufacturing chemical fertilizers, chemicals including urea, ammonium sulphate, dye Page 2 of 28 O/TAXAP/369/2002 JUDGMENT ammonium phosphate, caprolactum. During year Coast DAP Project at Sikka has started production of DAP, which is chemical fertilizer, various details have been furnished at time of return and subsequently in course of assessment proceedings. On going through details filed points of Rental Income, Guest House Expenses, Entertainment Expenses, Disallowance under Section 40A(5), provision for Gratuity, etc. points were discussed. assessee company has filed its return of income on 29.06.1987, declaring income of Rs.10,28,33,600/ , whereas Assessing Officer has assessed total income of Rs.14,31,43,634/ . assessee has filed appeal before CIT(A) who vide order dated 09.11.1990, partly allowed appeal. 5. Feeling aggrieved by said order, assessee as well as Revenue both had filed ITA No.623/Ahd/1991 and ITA No.727/Ahd/1991 respectively before Income Tax Appellate Tribunal, Ahmedabad. Both these appeals were Page 3 of 28 O/TAXAP/369/2002 JUDGMENT partly allowed by ITAT vide its order dated 04.05.2000. Hence, being aggrieved by said order, Revenue has filed present appeal. 6. We have heard learned counsel from all sides. Tax Appeal No.384 of 2000 was admitted vide order dated 13.11.2000. While admitting said Appeal, following substantial questions of law arose for determination of this Hon'ble Court; (A) Whether, Tribunal was justified in allowing deduction of Rs.1,38,48,000/ on account of obsolescence charges in respect of certain non moving imported spare parts, though said spare parts were not completely proved to be scrap and despite fact that claim did not fall under Sec.32, 37, and 28 of Act? (B) Whether Tribunal was justified in allowing deduction of Rs.9,266/ in respect of guest house despite clear provision of section 37(4) of Act? (C) Whether telephone equipment installed in factory, mobile equipments etc. were eligible for investment allowance u/s. 32A of Act? 7. counsel for respondent has contended that issues raised in these appeals are now concluded by decision of this Court as well Page 4 of 28 O/TAXAP/369/2002 JUDGMENT as decision of Hon'ble Supreme Court. So far as question No.1 is concerned, Hon'ble Supreme Court in case of Commissioner of Income tax v. Alfa Laval (India) Ltd., reported in 295 ITR 451, has held that (i) there was no undervaluation of stock, where assessee had valued its obsolete stock at 10 per cent and had sold it in next year at less than that value and (ii) amount written back in profit and loss account by way of adjustment on recomputation of depreciation on basis of circular of Company Law Board could not be reduced from profit eligible under section 32AB, and (iii) interest from customers and sales tax set off received by assessee, being profits of business under head Profits and gains of business or profession could not be excluded while calculating deduction under section 80HHC. appeal was preferred to Supreme Court by Department against said decision. said appeal was dismissed by Supreme Court leaving question of law open. Page 5 of 28 O/TAXAP/369/2002 JUDGMENT 8. So far as question No.2 is concerned, Hon'ble Supreme Court has dealt with similar question in case of Britannia Industries Ltd. v. Commissioner of Income Tax and another, relevant paragraphs read as under: facts involved in this case do not attract provisions of Sections 30 to 36 of Act, but have been referred to on account of reference made thereto under Section 37 of Act which is important for our purpose. In order to appreciate arguments advanced on behalf of appellant, provisions of Section 37 as they stood during relevant assessment year are set out herein below : "37. General. (1)Any expenditure (not being expenditure of nature described in Sections 30 to 36 and not being in nature of capital expenditure or personal expenses of assessee), laid out or expended wholly and exclusively for purposes of business or profession shall be allowed in computing income chargeable under head "profits and gains of business or profession". (2) Notwithstanding anything contained in sub section (1), no expenditure in nature of entertainment expenditure shall be allowed in case of company, which exceeds aggregate amount computed as hereunder: i) On first At rate of 1 per Rs.10,00,000/ of cent or Rs.5,000/ profits and gains of whichever is higher; business (computed before making any allowance under Page 6 of 28 O/TAXAP/369/2002 JUDGMENT Section 33 [or Section 33A] or in respect of entertainment expenditure) ii) On next At rate of 3 = Rs.40,00,000/ of profits per cent; and gains of business (computed in manner aforesaid) iii) On next At rate of 4 = Rs.1,20,00,000/ of per cent; profits and gains of business (computed in manner aforesaid) iv) On balance of Nil profits and gains of business (computed in manner aforesaid) (2A) Notwithstanding anything contained in sub Section(1) or sub Section (2), no allowance shall be made in respect of so much of expenditure in nature of entertainment expenditure incurred by any assessee during any previous year which expires after 30th day of September, 1967, as is in excess of aggregate amount computed as hereunder: i) On first Rs.10,00,000/ of profits and gains of business or profession (computed before making any allowance under [Section 32A or] Section 33 or Section 33A or in respect of entertainment expenditure) At rate of = per cent or Rs.5,000/ whichever is higher; ii) On next Rs.40,00,000/ of profits and gains of business or profession (computed in manner aforesaid) At rate of < per cent; iii) On balance of profits and gains of business or profession (computed in manner aforesaid) At rate of 1/8 per cent. Page 7 of 28 O/TAXAP/369/2002 JUDGMENT So, however, that allowance shall in no case exceed Rs.50,000/ . Provided that where previous year of any assessee falls partly before and partly after 30th day of September, 1967, allowance in respect of such expenditure incurred during previous year shall not exceed a) In case of company i) in respect of such expenditure incurred before 1st day of October, 1967, sum which bears to aggregate amount computer at rate or rates specified in sub Section (2), same proportion as number of days comprised in period commencing on 1st day of such previous year and ending with 30th day of September, 1967, bears to total number of days in previous year; ii) in respect of such expenditure incurred after 30th day of September, 1967, sum which bears to aggregate amount computed at rate or rates specified in this sub section, same proportion as number of days comprised in period commencing on 1st day of October, 1967, and ending with last day of previous year bears to total number of days in previous year; (b) in any other case i) in respect of such expenditure incurred before 1st day of October, 1967, amount admissible under sub section (1); ii) in respect of such expenditure incurred after 30th day of September, 1967, sum which bears to aggregate amount computed at rate or rates specified in this sub section, same proportion as number of days comprised in period Page 8 of 28 O/TAXAP/369/2002 JUDGMENT commencing on 1st day of October, 1967, and ending with last day of previous year bears to total number of days in previous year. [Explanation 1] : For purposes of this `entertainment expenditure' includes i) amount of any allowance in nature of entertainment allowance paid by assessee to any employee or other person after 29th of February, 1968; ii) amount of any expenditure in nature of entertainment expenditure [not being expenditure incurred out of allowance of nature referred to in Clause (i) incurred after 29th day of February, 1968, for purposes of business or profession of assessee by any employee or other person). Explanation 2 : For removal of doubts, it is hereby declared that for purposes of this sub section and sub section (2B), as it stood before 1st day of April 1977, `entertainment expenditure' includes expenditure on provision of hospitality of every kind by assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by assessee to his employees in office, factory or other place of their work. (2B) Notwithstanding anything contained in sub section (1), no allowance shall be made in respect of expenditure incurred by assessee on advertisement in any souvenir, brochure, tract, pamphlet or like published by political party. (3) Notwithstanding anything contained in sub section (1), any expenditure incurred by Page 9 of 28 O/TAXAP/369/2002 JUDGMENT assessee after 31st of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in nature of guest house or in connection with traveling by employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to extent, and subject to such conditions, if any, as may be prescribed. (3A) Notwithstanding anything contained in sub section (1), where expenditure or, as case may be, aggregate expenditure incurred by assessee on any one or more of 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 income chargeable under head `profits and gains' of business or profession. (3B) 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 hotel. Explanation: for purposes of sub sections (3A) and (3B): a) expenditure specified in clause (i) to clause (iii) of sub section (3B) shall be aggregate amount of expenditure incurred by assessee as reduced by so much of such expenditure as is not allowed under any other provisions of this Act; b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of assessee engaged in one or more of said activities; Page 10 of 28 O/TAXAP/369/2002 JUDGMENT 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 assessee is company, conveyance allowance paid to its directors also. (3C) Nothing contained in sub section (3A) shall apply in respect of expenditure incurred by assessee, being domestic company as defined in clause (2) of Section 80B, or person (other than 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 goods, services or facilities which assessee deals in or provides in course of his business; ii) running and maintenance of motor cars in any branch, office or agency maintained outside India for promotion of sale outside India of such goods, services or facilities. (3D) No disallowance under sub section (3A) shall be made i) in case of assessee engaged in business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft; ii) in case of assessee engaged in business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars. (4) Notwithstanding anything contained in Page 11 of 28 O/TAXAP/369/2002 JUDGMENT sub section (i) or sub section (3): i) no allowance shall be made in respect of any expenditure incurred by assessee after 28th day of February, 1970, on maintenance of any residential accommodation in nature of guest house (such residential accommodation being hereafter in this sub section referred to as "guest house"); ii) in relation to assessment year commencing on 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as guest house or depreciation of any assets in guest house: Provided that aggregate of expenditure referred to in clause (i) and amount of any depreciation referred to in clause (ii) shall, for purposes of this sub section, be reduced by amount, if any, received from persons using guest house: Provided further that nothing in this sub section shall apply in relation to any guest house maintained as holiday home if such guest house (a) is maintained by assessee who was throughout previous year employed not less than one hundred whole time employees in business or profession carried on by him; and (b) is intended for exclusive use of such employees while on leave. Explanation For purposes of this sub section: (i) residential accommodation in nature of guest house shall include accommodation hired or reserved by assessee in hotel Page 12 of 28 O/TAXAP/369/2002 JUDGMENT for period exceeding one hundred and eighty two days during previous year; and (ii) expenditure incurred on maintenance of guest house shall, in case where residential accommodation has been hired by assessee, include also rent paid in respect of such accommodation. (5) For removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by assessee for purpose of providing lodging or boarding and lodging to any person (including any employee or, where assessee is company, also any director of, or holder of any other office in, company), on tour or visit to place at which such accommodation is situated, is accommodation in nature of guest house within meaning of sub section (4)." aforesaid provision of Income Tax Act has undergone several changes from time to time and some of portions, which are relevant for decision in this case have since been omitted. However, it may be of interest to note that Sub section (1) of Section 37 was brought on statute book in 1964 and underwent several other changes thereafter. Sub section (3) of Section 37 was inserted by Finance Act 1964 with effect from 1st April, 1964 and was, thereafter, omitted by Finance Act, 1997 with effect from 1st April, 1998. Similarly Sub section (4) was inserted by Finance Act 1970 with effect from 1st April, 1970 and was, thereafter, omitted by Finance Act, 1997 with effect from 1st April, 1998. As will be apparent from reading of Sub section (1) of Section 37 of Act, any expenditure not being expenditure of nature described in Sections 30 to 36, inter Page 13 of 28 O/TAXAP/369/2002 JUDGMENT alia, allowed and expended wholly and exclusively for purposes of business or profession, is to be allowed in computing income chargeable under heading "profits and gains of business or profession". In other words, Section 37 is to be read to exclusion of amounts allowable under Sections 30 to 36. Although, expression "premises used for purposes of business or profession" has been used along with expression "buildings and furniture" under Sections 30, 31 and 32 of Act, for first time expression "residential accommodation including any accommodation in nature of guest house" has been used in Sub section (3) of Section 37 of Act. As will be seen, Sub section (3) of Section 37 indicates that notwithstanding anything contained in Sub section (1) any expenditure incurred by assessee after 31st of March, 1964, inter alia, on maintenance of any residential accommodation in nature of guest house and hotel expenses, would be allowed only to extent and subject to such conditions, if any, as may be prescribed. Sub section (4), which was inserted in statute book with effect from 1st April, 1970, is specific and provides that notwithstanding anything contained in Sub section (1) and Sub section (3) no allowance shall be made in respect of any expenditure incurred by assessee after 28th February, 1970, on maintenance of any residential accommodation in nature of guest house and no allowance shall be made in respect of depreciation of any building used as guest house or depreciation of any assets in guest house. However, guest house maintained as holiday home in circumstances indicated have been excluded from purview of Sub section (4) referred to hereinabove. Inasmuch as, doubts still remained regarding nature of Page 14 of 28 O/TAXAP/369/2002 JUDGMENT accommodation used as guest house by companies, Sub section (5) was included in Section 37 by Finance Act in 1983 with effect from 1st April 1979 and was subsequently omitted by Finance Act, 1997 with effect from 1st April, 1998. At relevant point of time, namely, assessment year 1994 1995, all aforesaid provisions of Section 37 were available and, therefore, applicable to case of appellant company. Dr. Debi Prasad Pal, learned senior counsel, appearing on behalf of company, urged that Sections 30 to 32 deal with specific types of expenditure which are allowable in terms of said provisions, whereas Section 37 deals with all other expenditure, not being expenditure described in Sections 30 to 36 of Act, subject to conditions: (a) expenditure must not be of capital expenditure; (b) expenditure must not be of personal nature; and (c) expenditure must be incurred wholly and exclusively for 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 Act. Dr Pal also urged that since expenditure incurred by assessee towards payment of rent, rates, taxes, repairs and insurance of premises, buildings and furniture used for purposes of business or profession has been provided for specifically under Sections 30, 31 and 32 of Act, by virtue of non obstante clause used in Sub section (1) of Section 37 such expenses could not again be referable to Section 37 and different provisions thereof. In other words, Dr. Pal urged that since aforesaid expenses had been specifically allowed to be deducted said benefit could not be taken away by including of expression "residential Page 15 of 28 O/TAXAP/369/2002 JUDGMENT accommodation including any accommodation in nature of guest house" in Sub section (3) of Section 37 of said Act. Dr. Pal then urged that having allowed partial benefit, it could not have been intention of Legislature to take away entire benefit by incorporating Sub section (4) with effect from 1st April, 1970. It was urged that such view would be borne out from fact that provisions relating to restrictions imposed with regard to expenses incurred towards maintenance and other expenditure of guest houses run by companies, were sought to be omitted with effect from 1st April, 1998. Dr. Pal urged that interpretation regarding allowability of rents, repairs, insurance and maintenance expenses of guest houses under Section 37(3) of Act fall for consideration of Bombay High Court in Commissioner of Income Tax vs. Chase Bright Steel Limited., reported in (1989) 177 ITR 124, wherein it was held that business expenditure, such as rent for premises used as guest house and amounts spent on repairs to furniture used therein, could not be disallowed under Section 37(3) of Act, inasmuch as same had been allowed under Sections 30 and 31 of Act. Dr. Pal also referred to another decision of Bombay High Court in Century Spinning and Manufacturing Co. Ltd. vs. Commissioner of Income Tax, reported in (1991) 189 ITR 660, where following its earlier decision in case of Chase Bright Steel Private Ltd. (supra), it was held that Sub Section (4) of Section 37 of Act is non obstante clause in relation to Sub section (1) and Sub Section (3) of Section 37 and if any expenditure or allowance was made allowable in other sections of Act, same could not be withdrawn or denied to assessee because of prohibitory provisions of Sub section (4) of Section 37. Page 16 of 28 O/TAXAP/369/2002 JUDGMENT similar view appears to have been expressed by Gujarat High Court in case of Commissioner of Income Tax vs. Ahmedabad Manufacturing and Calico Printing Co. Ltd., reported in (1992) 197 ITR 538; wherein it was also held that expenses incurred of nature described in Sections 30 to 36 could not be disallowed under Section 37 (4) of Act. Dr. Pal also referred to Full Bench decision of Kerala High Court in Commissioner of Income Tax vs. Travancore Cements Ltd., reported in (1999) 240 ITR 816, wherein distinction was sought to be made between expression "repairs" as used in Section 37 and expression "maintenance" as used in Sub section (3A) and (3B) of Section 37. Based on such distinction, it was held that non obstante clause in Section 37 (3A) cannot have any overriding effect in respect of other provisions pertaining to allowances of expenditure under Sections 30 to 36 of Act. Dr. Pal submitted that similar distinction has been made by 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 guest house has been specifically dealt with in Section 30 and could not, therefore, be disallowed under Sub section (4) of Section 37. Dr. Pal lastly referred to two decisions of 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 view that business expenditure for guest houses would not be allowable, having regard to provisions of Section 37(4) of Act. Page 17 of 28 O/TAXAP/369/2002 JUDGMENT Dr. Pal submitted that apart from said two decisions of Calcutta High Court, uniform decision of most of High Courts appears to be that since expenditure incurred for rents, rates, taxes, repairs and insurance of buildings and premises and furniture used for purposes of business or profession, have been specifically provided for in Sections 30, 31 and 32 of Act, benefits thereof could not be denied to assessee under relevant provisions of Section 37 of Act. Dr. Pal urged that judgment under appeal did not give any independent reasoning but was rendered following decision of Calcutta High Court in Century Spinning and Manufacturing Co. Ltd. and Upper Ganges Sugar Mills Ltd. (supra) and could not therefore be sustained. Appearing for Revenue, Mr. Rajeev Dutta, learned senior counsel, however, contended that provisions of Section 37 would have to be read in isolation from provisions of Sections 30 to 36 of Act as contemplated by non obstante clause in Sub section (1) of Section 37. Mr. Dutta urged that provisions of Section 37 had been correctly interpreted in two decisions of Calcutta High Court in Century Spinning and Manufacturing Co. Ltd. and Upper Ganges Sugar Mills Ltd. (supra). Mr. Dutta urged that it was clear intention of Legislature to exclude benefit of deduction in respect of guest houses which were being run and maintained by companies in lavish manner. Mr. Dutta submitted that while premises and buildings had been referred to in general terms in Sections 30, 31 and 32 of Act, guest houses had been separately categorized for purposes of Section 37 which would be quite evident from manner in which expenses, including rent and maintenance, Page 18 of 28 O/TAXAP/369/2002 JUDGMENT were sought to be withdrawn in respect of such guest houses. Mr. Dutta submitted that intention of Legislature would be further clear from insertion of Sub section (5) which brought within scope and ambit of Section 37(4) all accommodation by whatever name called in nature of guest house. In support of his submissions, Mr. Dutta referred to decision of Rajasthan High Court in Commissioner of Income Tax vs. Instrumentation Ltd. reported in (2002) 258 ITR 513, where upon considering views expressed by Bombay High Court and Gujarat High Court in cases of Chase Bright Steel Ltd. and Ahmedabad 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 Act. Reference has also been made to decision of Madras High Court in Commissioner of Income Tax vs. Mathurantakam Co operative Sugar Mills Ltd., reported in (2000) 241 ITR 817; wherein certain expenses, which came within mischief of Section 37(4) of Act were disallowed. Other similar decisions of Madras and Rajasthan High Courts were also referred to. Mr. Dutta lastly referred to another decision of Calcutta High Court in 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 party. In said case Calcutta High Court had occasion to consider various decisions which have also been cited by Dr. Pal in instant case and upon consideration of language of Section 37(4), it was held that having regard to unambiguous bar incorporated under Sub Page 19 of 28 O/TAXAP/369/2002 JUDGMENT section (4) of Section 37, benefits indicated in Sections 30 to 36 although, independent of Section 37, could not be related to guest house maintained by assessee. It was held that apart from view taken in Upper Ganges Sugar Mills Ltd. and Kesoram Industries and Cotton Mills Ltd., any other interpretation would negate object of prohibition engrafted in Sub Section (4). only question which we are called upon to consider in instant case is whether expression 'premises and buildings' referred to in Sections 30 and 32 and used for purposes of business or profession would include within its scope and ambit expression 'residential accommodation including any accommodation in nature of guest house' used in Sub sections (3), (4) and (5) of Section 37 of Act. While two expressions can be similarly interpreted, distinction has been sought to be introduced for purposes of Section 37 by specifying nature of building to be guest house. In our view, intention of Legislature appears to be clear and unambiguous and was intended to exclude expenses towards rents, repairs and also maintenance of premises/accommodation used for purposes of guest house of nature indicated in Sub section (4) of Section 37. When language of statue is clear and unambiguous, courts are to interpret same in its literal sense and not to give it meaning which would cause violence to provisions of statute. If Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for purposes of business or profession, then it would not have felt need to amend provisions of Section 37 so as to make definite distinction with regard to buildings used as guest houses as defined in Sub Page 20 of 28 O/TAXAP/369/2002 JUDGMENT section (5) of Section 37 and provisions of Sections 31 and 32 would have been sufficient for said purpose. decisions cited by Dr. Pal contemplate situations where specific provision had been made in Sections 30 to 36 of Act and it was felt that what had been specifically provided therein could not be excluded under Section 37. clarification introduced by way of Sub section (5) to Section 37 was also not considered in said case. As mentioned in decision of Calcutta High Court in case of Biswanath Tea Co. Ltd. (supra), any other interpretation would negate very purpose of Sub section (4) of Section 37. It is another matter that at subsequent point of time, Legislature felt it necessary to omit said provisions, but they were in statute book at relevant point of time. rigours of same, in our view, cannot be avoided in instant case. appeal is accordingly dismissed, but without any order as to costs. 9. So far as question No.3 is concerned, same is covered by 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. Income Tax Appellate Tribunal, Ahmedabad Bench "B" has referred following questions under Section 256(1) of Page 21 of 28 O/TAXAP/369/2002 JUDGMENT Income Tax Act, 1961 (the Act) at instance of Commissioner of Income Tax, Baroda. "(1) Whether, on facts and in circumstances of case, Appellate Tribunal was right in law in holding that drainage and sewerage network constituted plant and machinery and was entitled to investment allowance u/s 32A of I.T.Act on its cost of Rs.63,54,058/ ? (2) Whether, on facts and in circumstances of case, Appellate Tribunal was right in law in holding that tractor trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance u/s 32A of I.T.Act?" respondent assessee company is Public Limited Company carrying on business of manufacture of chemical fertilizers. Assessment Year is 1983 84 and relevant accounting period is calender year 1982. assessee company installed drainage and sewerage network costing Rs.63,54,058/ and claimed investment allowance on said sum on basis that same formed part and parcel of plant and machinery. claim was rejected by Assessing Officer and Commissioner (Appeals). assessee carried matter in appeal before Tribunal and Tribunal held that assessee was entitled to investment allowance claimed by holding that drainage and sewerage network was installed for purpose involving handling of waste quantities of materials obtained on chemical reaction while manufacturing fertilizers. That said network was utilised to channelize fluids consisting of effluent, blowout washing spillage and leakage from various sections and units of Page 22 of 28 O/TAXAP/369/2002 JUDGMENT main plant, which were either pumped or otherwise collected thereafter for purposes of treatment and re cycling or being released. Tribunal, therefore, found that drainage and sewerage network running through factory and attached to plant and machinery was part and parcel of plant and machinery itself. In relation to second question, assessee claimed that certain tractor trailers were used in factory premises for lifting and carrying equipments and materials. cost of such tractor trailers was Rs.2,82,508/ and on said sum , investment allowance was claimed. Assessing Officer rejected claim by holding that they were road transport vehicles. CIT (Appeals) confirmed said finding. Tribunal, for reasons stated in paragraph No.9 of its order, held that huge quantities of raw materials, finished products and equipments were required to be handled and transported within factory premises and for such handling and transportation, tractor trailers were used entitling assessee to claim investment allowance. matter has been heard on 9th and 10th March 2005, but learned advocate for applicant is absent. However, learned advocate for respondent assessee Shri Manish J. Shah is present and has made his submissions in support of order made by Tribunal. In relation to question No.1, 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 reasons stated in aforesaid decision of this Court, question No.1 is Page 23 of 28 O/TAXAP/369/2002 JUDGMENT answered in affirmative i.e. in favour of assessee and against revenue. Tribunal was right in holding that drainage and sewerage network was entitled to investment allowance under Section 32A of Act on investment cost of Rs.63,54,058/ . In relation to second question, following decisions were cited on behalf of assessee to submit that various courts have held that tractors trailers used in factory premises for lifting and carrying equipments and materials would be "plant" within meaning of definition of said term under Section 43(3) of Act. It was further submitted that, for purposes of ascertaining whether item of plant or machinery is entitled to investment allowance or not, has to be tested by considering function such plant or machinery performs during conduct of business of assessee. (1) Shiv Construction Co. v. Commissioner of Income Tax, 165 ITR 160 (Guj.) (2) Commissioner of Income Tax v. U.P.Paschimi Kshetriya Vikas Nigam Ltd., 264 ITR 273 (Alh.) (3) Commissioner of Income Tax v. Tarun Commercial Mills Ltd., 151 ITR 75 (Guj.) (4) Commissioner of Income Tax v. SLM Maneklal Industries Ltd., 205 ITR 547 (Guj.) (5) Commissioner of Income Tax v. Progressive Engineering Co., 230 ITR 729 (A.P.) (6) Commissioner of Income Tax v. Sibson Construction & Co. 221 ITR 468 (Gauhati) (7) Commissioner of Income Tax v. Nandlal Parshuram, 239 ITR 497 (Gauhati) It is apparent that Tribunal has found that tractor trailers were used to transport huge quantities of raw materials, finished products and equipments within factory premises. In light of this finding Page 24 of 28 O/TAXAP/369/2002 JUDGMENT of fact, it is not possible to state that tractor trailers would fall within meaning of road transport vehicles. Road transport vehicles would, in common parlance, mean vehicles which are used for transportation of goods or passengers by road. In normal circumstances, tractor trailer is not used for transportation of people at least, though in given set of circumstances it may be involved in transportation of goods. However, what is material is as to where such transportation takes place. In facts of case, as noted hereinbefore, Tribunal has found on facts that tractor trailers have been used for handling and transportation of raw materials, finished products and equipments within factory premises only. In these circumstances, applying functional test, it may be safely stated that decision of Tribunal holding that assessee is entitled to investment allowance by treating such tractor trailers as "plant" under Section 32A of Act, is correct. However, there is one more aspect of matter. Section 32A(1) of Act stipulates that investment allowance equal to 25% of actual cost of plant or machinery is allowable as deduction in respect of previous year in which machinery or plant was installed, or first put to use in immediately succeeding previous year, then, in respect of that previous year. Therefore, whether tractor trailer could be termed to have been installed in previous year, even if it is treated to be plant, is required to be answered. In 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 know how kept in office premises were entitled to investment allowance under Section 32A of Page 25 of 28 O/TAXAP/369/2002 JUDGMENT Act. After holding that books would be plant within meaning of section 32A(1) of Act, Court held that: "The word "installed" occurring in section 32A(1) would not necessarily mean that it should be fixed in position, but word is also used in sense of "induct" or "introduce" or "placing apparatus in position for service or use" as held by Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165. word "installed" would mean to place in position for service or use or to set up for service or use. books would be installed when they would be placed for use in premises in question" It may be noted that similar view is expressed by 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 aforesaid test, it is apparent that tractor trailer was inducted or introduced in business and was, therefore, installed for purposes of business of assessee entitling assessee to claim investment allowance. In result, question No.2 is answered in affirmative i.e. in favour of assessee and against revenue. Tribunal was justified in holding that tractor trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance under Section 32A of Act. Reference stands disposed of accordingly. There shall be no order as to costs. Page 26 of 28 O/TAXAP/369/2002 JUDGMENT 10. Hence, in view of above decision, we answer issue No.3 in favour of assessee and against Revenue. 11. In view of above, we concur with findings recorded by learned Tribunal based on decision of Jurisdictional High Court and since issues are already concluded vide judgment rendered in above decisions, we are not assigning elaborate reasons for disposing these appeals. Accordingly, questions of law are answered as follows: I. In both appeals, Issue No.1 is answered in favour of assessee and against Department. II. In Tax Appeal No.384 of 2000, issue No.2 is answered in favour of Revenue and against assessee and issue No.3 is answered in favour of assessee and against Revenue. 12. appeals stand disposed of accordingly. Page 27 of 28 O/TAXAP/369/2002 JUDGMENT (K.S.JHAVERI, J.) (K.J.THAKER, J) ANKIT Page 28 of 28 Commissioner of Income-tax-I v. Gujarat State Fertilizer Co. Ltd
Report Error