High Court Of Calcutta
CIT vs. Biswanath Tea Co. Ltd.
Sections 30, 36, 37
Altamas Kabir & Alok Kumar Basu, JJ.
IT Ref. No. 15 of 1998
23rd July, 2003
Counsel Appeared
P.K. Mullick with D. Deb, for the Revenue : Dr. Debi Prosad Pal with Ms. M. Seal, for the Assessee
JUDGMENT
Altamas Kabir, J. :
This reference by the Tribunal at the instance of the CIT, West Bengal-II, Calcutta, arises out of the order of the Tribunal in ITA No. 1514 (Cal) of 1992, for this Court’s view on the following question of law : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the disallowance made under s. 37(4), the guest house expenditure without giving any specific finding ?”
2. As will appear from the statement of the case, the AO had disallowed a sum of Rs. 9,96,677 on account of guest-house maintenance under s. 37(4) of the IT Act, 1961. Aggrieved thereby, the assessee preferred an appeal before the CIT(A) on the ground that only a sum of Rs. 4,55,630, which had already been included in the return, had been disallowed under s. 37(4) of the above Act and the amount of Rs. 4,86,631 had not been disallowed under s. 37(4), inasmuch as, the same was allowable under ss. 30 and 31. The CIT(A) upheld the AO’s view and dismissed the appeal. The assessee thereupon moved the Tribunal which following its earlier decision in the assessee’s own case for the asst. yr. 1985-86 and the decision of this Court in the case of CIT vs. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal) held that the expenditure in respect of repairs amounting to Rs. 4,69,398 and the expenditure in respect of rates and taxes amounting to Rs. 16,133 were allowable as business expenditure. This reference arises out of the said order of the learned Tribunal.
Appearing for the Revenue, Mr. Pradyush Mullick, firstly urged that s. 37 of the IT Act, 1961, made special provision for expenditure not covered by ss. 30 to 36 and the non obstante clause in sub-s. (4) of s. 37 of the said Act specifically excluded the special provision made in sub-s. (1) thereof. Referring to the decision of the Supreme Court in the case of General Insurance Corporation of India vs. CIT (1999) 156 CTR (SC) 425 : (1999) 240 ITR 139 (SC) where the non obstante clause in s. 44 of the IT Act was noted to have an overriding effect over other provisions contained in the Act, Mr. Mullick urged that similarly in the case of sub-s. (4) of s. 37 the non obstante clause would have an overriding effect over both sub-ss. (1) and (3).
Mr. Mullick submitted that the question involved in this reference had also fallen for the consideration of this Court in CIT vs. Upper Ganges Sugar Mills Ltd. (1993) 114 CTR (Cal) 375 : (1994) 206 ITR 215 (Cal) and this Court had held that the language of sub-s. (4) of s. 37 was quite emphatic and provided that no allowance at all was intended in respect of any expenditure incurred after 28th, Feb., 1970, on the maintenance of any residential accommodation in the nature of a guest-house. It was held further that no allowance of depreciation is also permissible for such guest-house or any assets in such guest-house.
Mr. Mullick also referred to an earlier decision in the case of Kesoram Industries and Cotton Mills Ltd. vs. CIT (1991) 191 ITR 518 (Cal), wherein this Court had similarly observed that s. 37(4) had been inserted by the Finance Act, 1970, for disallowance altogether of expenditure incurred after 28th Feb., 1970, on the maintenance of guest-houses other than ‘holiday homes’ in computing the profits and gains of business or profession.
Mr. Mullick lastly referred to another decision of this Court in Britannia Industries Ltd. vs. CIT & Anr. (2002)
177 CTR (Cal) 461 : (2002) 257 ITR 681 (Cal), where on a reference to the two aforesaid decisions in the Upper Ganges Sugar Mills case (supra) and in Kesoram Industries and Cotton Mills Ltd.’s case (supra), a Bench of this Court had held that no open question of law remained for admission or further scrutiny.
Mr. Mullick urged that similar views had been expressed by the Rajasthan High Court in CIT vs. Instrumentation Ltd. (2002) 177 CTR (Raj) 269 : (2002) 258 ITR 513 (Raj), by the Madhya. Pradesh High Court in Hindustan Electro Graphites Ltd. vs. CIT (2002) 258 ITR 518 (MP), by the Kerala High Court in United Catalysts India Ltd. vs. CIT (1997) 140 CTR (Ker) 55 : (1998) 229 ITR 233 (Ker) and by the Bombay High Court in CIT vs. Ocean Carriers (P) Ltd. (1995) 123 CTR (Bom) 200 : (1995) 211 ITR 357 (Bom).
Mr. Mullick urged that the intention of the legislature to curb lavish expenditure in maintaining guest-houses was reflected in the Finance Minister’s Budget speech in Parliament on 28th Feb., 1970, which culminated in the Finance Act, 1970, whereby sub-s. (4) of s. 37 was incorporated in the IT Act, 1961.
Mr. Mullick submitted that as had been observed by this Court in Britannia Industries Ltd.’s case (supra), the question of law involved in this reference has already been answered and does not require any further scrutiny.
5. Appearing for the respondent-assessee, Dr. Debi Pal, urged that the provisions of s. 37 were general in nature and intended to cover situations not contemplated or covered by ss. 30 to 36 of the IT Act, 1961. Dr. Pal urged that by the use of the non obstante clause in sub-s. (4) of s. 37, the legislature intended that sub-s. (4) was to have an overriding effect over sub-ss. (1) and (3) and was to relate to ss. 30 to 36 which had been excluded by sub-s. (1). Dr. Pal urged that certain deductions had been allowed under ss. 30, 31 and 32 of the Act which would also apply in the case of guest-houses and had been held as much by different High Courts in the country. Referring to the language of sub-s. (1) of s. 37 of the IT Act, Dr. Pal submitted that by virtue of the non obstante clause used in sub-s. (4) any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, used for the purpose of the business, is to be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession’ and deduction under ss. 30, 31 and 32 is to be allowed thereupon.
Dr. Pal submitted that the expression ‘for the purpose of the business’ had been interpreted and explained by the Supreme Court in CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) to be wider in scope than the expression ‘for the purpose of earning profits’. It was, inter alia, observed that the range of the expression is wide and may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery and may comprehend many other acts incidental to the carrying on of the business. Dr. Pal urged that the same would also include maintenance of a guest-house which was incidental to the carrying on of the business.
Dr. Pal submitted that an identical question had fallen for consideration before the Bombay High Court in CIT vs. Chase Bright Steel Ltd. (1989) 75 CTR (Bom) 60 : (1989) 177 ITR 124 (Bom), wherein it had been held that since the expenditure related to the maintenance of the guest-house covered by ss. 30 and 31 of the Act, the provisions of sub-ss. (1) and (3) of s. 37 would not be attracted to disallow the permitted deductions.
Dr. Pal then referred to another decision of the Bombay High Court in the case of Century Spinning and Manufacturing Co. Ltd. vs. CIT (1991) 99 CTR (Bom) 8 : (1991) 189 ITR 660 (Bom), where following its decision in the case of Chase Bright Steel Ltd. (supra) it was more explicitly observed that although sub-s. (4) of s. 37 is a non obstante clause, it is a non obstante clause vis-a-vis subs. (1) and sub-s. (3) of s. 37 only, and if an expenditure or allowance is allowable under other sections of the Act, such allowance cannot be withdrawn or denied to the assessee because of the prohibitory provisions in s. 37(4) of the IT Act, 1961. Reference was also made to a decision of the Gujarat High Court in CIT vs. Maharana Mills Ltd. (1994) 120 CTR (Guj) 271 : (1994) 208 ITR 972 (Guj), wherein the same view as in the Bombay case was expressed and it was also held that the expenses incurred in the guest-house were in respect of modest meals supplied to staff, members and visitors which was not on a lavish scale. Other decisions on this point were also cited which need not detain us.
Dr. Pal then submitted that in Kesoram Industries’ case (supra), relied upon by Mr. Mullick, the effect of a non obstante clause had not been considered and could not, therefore, be relied upon as an authority for the purposes of sub-s. (4) of s. 37 of the Act and the submission made on behalf of the Revenue that the same was independent of ss. 30 to 36 of the Act.
Dr. Pal urged that in view of the non obstante clause in sub-s. (4) of s. 37 of the IT Act, the deductions available under other sections, such as ss. 30 to 36 would be allowable to an assessee, which having regard to ss. 30, 31 and
32 would include guest-houses.
8. From the materials disclosed hereinabove there is an apparent dichotomy in the views expressed by the different High Courts on the question which is now before us in this reference. While this Court has held the view that sub-s. (4) of s. 37 of the IT Act clearly provides that no allowance at all is intended in respect of any expenditure incurred on the maintenance of guest-houses after 28th Feb., 1970, the Bombay High Court had held in Chase Bright Steel Ltd. (supra) that the expenditure related to the maintenance of guest-houses covered by ss. 30 and 31 could not be disallowed on account of sub-ss. (1) and (3) of s. 37. Of the two views expressed, the language of sub-s. (4) of s. 37 of the above Act appears to support the view expressed by this Court. Clause (i) of sub-s. (4) states in no uncertain terms that no allowance shall be made in respect of any expenditure incurred by the assessee after 28th Feb.,1970, on the maintenance of guest-houses. The non obstante clause gives the provisions of sub-s. (4) an overriding effect over sub-ss. (1) and (3). The benefit given to an assessee under sub-s. (3) in relation to the maintenance of a guest-house was taken away by sub-s. (4).
In our view, having regard to the unambiguous bar incorporated in sub-s. (4) of s. 37, the benefits indicated in ss. 30 to 36, although, independent of s. 37, cannot be related to a guest-house maintained by the assessee. Apart from being the view of the jurisdictional High Court in the Upper Ganges Sugar Mills Ltd.’s case (supra) and in Kesoram Industries and Cotton Mills Ltd.’s case (supra), any other interpretation, in our view, would negate the object of the prohibition engrafted in sub-s. (4).
The reference is, therefore, answered in the affirmative. The Tribunal be informed accordingly. There will be no order as to costs.
Alok Kumar Basu, J. :
I Agree.
[Citation : 264 ITR 166]
