Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the expenditure of Rs. 5,25,000 estimated by the assessee during the accounting year on repairs and maintenance of motor car should not be considered for disallowance under s. 37 (3A) without considering whether it included any expenditure on drivers’ salary and the like which is disallowable under s. 37(3A) ?

High Court Of Madras

CIT vs. Southern Roadways Ltd.

Sections 32A, 37(1), 37(3A), 37(3B)

Asst. Year 1984-85, 1985-86

R. Jayasimha Babu & K. Raviraja Pandian, JJ.

Tax Case No. 202 of 1997

16th September, 2002

Counsel Appeared

T.C.A. Ramanujam, for the Applicant : S.A. Balasubramanian, for the Respondent

JUDGMENT

K. RAVIRAJA PADIAN, J. :

The question referred to at the instance of the Revenue is :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the expenditure of Rs. 5,25,000 estimated by the assessee during the accounting year on repairs and maintenance of motor car should not be considered for disallowance under s. 37 (3A) without considering whether it included any expenditure on drivers’ salary and the like which is disallowable under s. 37(3A) ?”

2. The facts from which the abovesaid question arose are as follows : The assessee is a company engaged in the business of transportation of goods. For the asst. yr. 1984-85, the assessee-company debited in the P&L a/c a sum of Rs. 13,17,723 under s. 37(3A). The said expenses included car running expenses of Rs. 2,62,532 comprising of fuel, lubricants and motor vehicle tax. The AO made an estimation of an equal amount to the car running expenses and arrived at a figure of Rs. 5,25,000. The addition was made on the ground that the assessee did not take into account expenditure for repair and replacement, drivers’ salary and insurance. On appeal, the CIT(A) directed that the insurance, taxes, repairs, drivers’ salary, etc., incurred on the cars belonging to the assessee were to be excluded from the purview of s. 37(3A) and directed the AO to work out the disallowance accordingly. On appeal by Revenue, the Tribunal upheld the order of CIT(A). Hence, the question referred to as above.

3. Sec. 37(3B) of the Act speaks of expenses incurred in running and maintenance of motor vehicle. The expressions “repairs” and “maintenance” are two different expressions. “Repair” means “to mend, remedy, restore, renovate, to restore to a sound or good state after decay, injury, dilapidation, or partial destruction”. Thus, “repair” presupposes certain injury or partial destruction. Whereas “maintenance” would mean to keep a particular thing in its similar state and require no mending, renovation or restoration. Hence, the view of the Revenue that expenses incurred in running and maintenance of motor car as stated under s. 37(3B) would not necessarily include repair and replacement. The above said view of ours is fortified by the view taken by the Gauhati High Court in the decision of George Williamson (Assam) Ltd. vs. CIT (1997) 139 CTR (Gau) 194 : (1997) 223 ITR 203 (Gau), wherein the Court held as follows : “In our opinion, the expressions “repairs” and “maintenance” are two different expressions. In this connection, we may refer to the dictionary meaning of the expressions “repairs” and “maintenance”. As per Black’s Law Dictionary (Fifth Edition), “repair” means” “to mend, remedy, restore, renovate. To restore to a sound or good state after decay, injury, dilapidation, or partial destruction”. Whereas the meaning of the expression, “maintenance” is “Act of maintaining, keeping up, supporting…..”. From the dictionary meaning of these two expressions it is very clear

In respect of inclusion of driver’s salary under s. 37(3A), the point is covered by the decision of this Court in CIT vs. Tamil Nadu Poultry Development Corporation (2002) 254 ITR 360 (Mad), wherein it was held that the driver’s salary should not be included for the purpose of computing disallowance of expenditure on maintenance of motor car under s. 37(3A) of the IT Act, which in turn followed another judgment of this Court in CIT vs. Sholinger Textiles Ltd. (1999) 240 ITR 908 (Mad), wherein an identical question has been considered and answer was given by this Court against the Revenue. Hence, the first question at the instance of the Revenue is answered against the Revenue and in favour of the assessee.

The following three questions have been referred at the instance of the assessee : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the expenditure of Rs. 26,729 actually incurred and for which liability to pay has arisen in the accounting year can be disallowed as not an admissible deduction in computing income from business ? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in negativing the claim for the investment allowance under s. 32A of the IT Act, 1961, in respect of computers installed in its data processing division ? Whether, on the facts and in the circumstances of the case, the Tribunal having held that computers are not office appliances erred in law in not considering the data processing division as a separate industrial undertaking eligible for deduction under s. 32A of the IT Act, 1961 ?”

The facts in respect of the first of the above three questions are that during the accounting year ended on 31st March, 1984, the assessee paid a sum of Rs. 26,729 out of which a sum of Rs. 22,034 has been paid towards postage, telegram, telephone, etc., and a sum of Rs. 4,695 has been paid as rates and taxes. The assessee-company in its accounts treated them as prepaid and showed it as an asset in its balance-sheet. However, the payments were made in pursuance of demands raised by postal, telephone and telegraph Departments, etc., the same was claimed as a deduction in computing income from business. The AO negatived the claim for deduction of such expenses.

In the appeal, CIT(A) accepted the contention of the appellant. On second appeal, the Tribunal held that on principle, the assessee is entitled to the Revenue deduction either on the basis of the “matching principle” or with reference to the s. 43B of the Act, that the said sum of Rs. 26,729 is not governed by either, thereby set aside the decision of CIT(A), and to that extent, restored the order of the AO.

The case of the assessee is that they are following the mercantile system of accounting, the amount has been actually incurred for which liability to pay has arisen in that accounting year. There is no dispute in this case that the amount has been actually paid. In the statement of case also, it is stated that the assessee-company in its account treated the abovesaid amount as prepaid and showed it as an asset in its balance-sheet. However, the payments were made in pursuance of demand raised by postal, telephone and telegraph Departments, etc., and claimed as deduction in computing income from business. The expenditure are actually incurred and are all revenue in nature relating to the business is allowable. Any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of business or profession should be allowed. Hence, we are of the view that the actual expenditure incurred have to be allowed notwithstanding the method of accounting the assessee followed. Hence, the first question is answered in favour of the assessee and against the Revenue.

The questions 2 and 3 can be considered together. The issue is related to the asst. yr. 1985-86. The assessee is a company carrying on business in goods carriage besides deriving income from investments and data processing, etc. During the relevant previous year, the assessee acquired and installed for its business purposes a fourth generation computer, costing Rs. 32,79,520 in the aggregate and claimed investment allowance of Rs. 8,19,380. The AO negatived the assessee’s claim on the ground that the computer is not a plant. It is more an office equipment than a plant and under s. 32A, investment allowance is not available to office equipment. The investment allowance is available only in respect of machinery and plant installed/used in an industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing not being an article or thing specified in the Eleventh Schedule of the Act. The assessee is not an industrial undertaking in the proper sense of the term. The appeal to the CIT(A) and further appeal to the Tribunal also ended against the assessee.

9. The question identical to the one which is under consideration has been considered by this Court in the case of CIT vs. Comp-Help Services (P) Ltd. (2000) 159 CTR (Mad) 220 : (2000) 246 ITR 722 (Mad) has held thus : “When data is processed with the aid of computers and the processing involves complicated steps which can only be performed with speed in a computer and the end-product is the analysis and presentation of data in the desired format such as balance-sheet, there is production. The word “production” in s. 32A(2), therefore, comprehends processing activity and the word “article” in that provision includes movables. The balance-sheet, sales analysis, statements, etc., obtained as a result of processing are movables and are different from the data that was initially fed into the computer though based upon the data so fed in, the end products obtained as a result of data processing are, therefore, new articles. The term “industry” is not defined in s. 32A, and, therefore, has to be ordinarily understood. “Industry” in s. 32A refers to industries which are engaged in the manufacture or production of goods or articles or things. The balance-sheet and other documents obtained as a result of the operation of the data processing system being articles which are obtained by processing amounts to production. Hence, a data processing company is an industrial company engaged in the production of articles. It is entitled to investment allowance in respect of computers.”

10. The said decision squarely covers question Nos. 2 and 3 referred to at the instance of the assessee. Hence, the questions are answered in favour of the assessee and against the Revenue.

[Citation : 265 ITR 404]

Malcare WordPress Security