Income Tax Appellate Tribunal - Delhi
Kelvinator Of India Ltd. vs Deputy Commissioner Of Income-Tax on 22 March, 1995
Equivalent citations: [1996]56ITD251(DELHI)
ORDER
G.D. Agrawal, Accountant Member [Paras (1) to (8) are not reproduced here as they involve minor issues. ]
9. The next ground of appeal i. e., ground Nos. 4. 1 and 4. 2 is against the upholding of the disallowance at Rs. 1, 75, 000 under Section 37(4) of the Income-tax Act.
9.1 At the time of hearing before us it is submitted by the ld. counsel for the assessee that the Assessing Officer has disallowed the rent paid for the guest house. He submitted that Section 37(4) starts with he non obslante clause and states "notwithstanding anything contained in Sub-section (1) or Sub-section (3)". Therefore, Section 37(4) overrides the provision of Sections 37(1) and 37(3) only. Therefore, the disallowance under Section 37(4) will be made in respect of the expenditure allowable under Section 37(1) or 37(3) only. He submitted that the rent is allowable under Section 30 and, therefore, the same cannot be disallowed under Section 37(4). In this respect, he relied upon the following decisions:
(i) CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 (Bom.);
(ii) (ii) Century Spg. & Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660 (Bom.);
(iii) CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1992] 197 ITR 538 (Guj.); and
(iv) American Bureau & Shipping v. ITO [1986] 19 ITD 793 (Bom.).
He further submitted that in any case if two views are possible, the view which is favourable to the assessee should be adopted. In this respect, he relied upon the decisions of the Hon'ble Supreme Court in the cases of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and CIT v. J. K. Hosiery Factory [1986] 159 ITR 85.
9.2 The ld. DR on the other hand, supported the order of the CIT (Appeals). She submitted that the disallowance of rent was fully justified. She pointed out that Section 37(4) by way of Explanation 2 provided that the expenditure incurred on maintenance of guest house includes rent paid in respect of such accommodation. She submitted that if the interpretation of Section 37(4) as made by the ld. counsel for the assessee is accepted, it would make the Explanation 2 of Section 37(4) nugatory. The interpretation which rendered the provision of the Act as nugatory, cannot be accepted as a reasonable interpretation of any provision of the Act. Therefore, she submitted that Section 37(4) has to be interpreted in such a manner which gives proper effect to the provision of the section including Explanations thereto. She also submitted that these arguments were not taken before the Bombay High Court or Gujarat High Court or before the Tribunal at the time of hearing of the cases cited by the learned counsel for the assessee. She also relied upon the following decisions: -
1. CIT v. Ocean Carriers (P.) Ltd. [1995] 211 ITR 357 (Bom.);
2. Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.);
3. CIT v. Upper Ganges Sugar Mills Ltd. [1994] 206 ITR 215 (Cal.); and
4. ACIT v. Trade Links Ltd. [IT Appeal Nos. 3163 and 3227 (Delhi) of 1989 ITAT, Delhi Bench 'E'.
9.3 The ld. counsel for the assessee in reply has submitted that the issue before the Hon'ble Calcutta High Court or Bombay High Court in the cases relied upon by the ld. DR was whether the accommodation maintained was guest house or not. Both the High Courts in none of the cases relied upon by the learned DR has considered the reasoning that Section 37(4) only overrides Sections 37(1) and 37(3).
10. We have carefully considered the arguments of both the sides. In our view, there is no consensus view of various High Courts on the issue. At the one hand, the Hon'ble Gujarat High Court in the case of Ahmedabad Mfg. & Calico Printing Co. Ltd. (supra), the Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. (supra) and in the case of Chase Bright Steel Ltd. (supra) have taken the view that the disallowance under Section 37(4) shall be restricted to the expenditure allowable under Sub-section (1) or Sub-section (3) of Section 37 only. The expenditure which are permissible under other sections, say, Section 30 (rent) or Section 32 (depreciation) are not disallowance under Section 37(4) though the expenditure may be related to the guest house. On the other hand, the Calcutta High Court in the case of Upper Ganges Sugar Mills Ltd. (supra) has upheld the disallowance of depreciation on guest house. Similarly, the Hon'ble Bombay High Court in the case of Ocean Carriers (P.) Ltd. (supra) has held that the assessee-company was not entitled to allowance under Section 37(4) in respect of any expenditure on maintenance of guest house nor to depreciation allowance. The ITAT Delhi Bench 'E' also in ITA Nos. 3163 and 3227/89 has upheld the disallowance of rent and depreciation on guest house.
10.1 Thus, it is evident that the two reasonable interpretations of the provision of Section 37(4) are possible. Now, it is a settled law that when the two interpretations of a provision are possible, the interpretation favourable to the assessee should be adopted. Accordingly, we adopt the view which is favourable to the assessee. Therefore, we direct that the rent paid on the guest house amounting to Rs. 1, 76, 000 be allowed. Accordingly, ground No. 4 is allowed.
11. In the result, the appeal is partly allowed.