Punjab-Haryana High Court
The Commissioner Of Income Tax vs M/S Pb Tractor Ltd on 8 December, 2014
Bench: Rajive Bhalla, B.S. Walia
ITR No. 157 of 1995 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
ITR No. 157 of 1995
Date of Decision: 8.12.2014
The Commissioner of Income Tax, Patiala
... Appellant
Versus
M/s Punjab Tractors Ltd., Mohali
... Respondent
CORAM:- HON'BLE MR. JUSTICE RAJIVE BHALLA
HON'BLE MR. JUSTICE B.S. WALIA
Present: Ms. Savita Saxena, Advocate,
for the appellant.
Mr. Divya Suri, Advocate, and
Mr. Sachin Bhardwaj, Advocate,
for the respondent.
RAJIVE BHALLA, J.(Oral)
The Income Tax Appellate Tribunal (hereinafter referred to as 'the ITAT'), Chandigarh Bench, Chandigarh, has forwarded a reference seeking answer to the following questions:-
"1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in upholding the order of the CIT(A) deleting addition of Rs.3600/- made by the Assessing Officer in view of Section 37(4) read with Section 37(5) in respect of rent paid by the assessee to P.S.I.D.C. for guest house?
2. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the subscription paid to the employee Directors in the form of cash payment could not be treated as perquisite because the very language of Section 40(A) (5) a) (ii) refers to ITR No. 157 of 1995 -2- perquisites whether convertible into money or not?
3. Whether on the facts and in the circumstances of the case, the ITAT was right in law in upholding the orders of the CIT(A) to allow extra shift allowance on the basis of the concern as a whole working as extra shift?
4. Whether on the facts and in the circumstances of the case, the ITAT was right in law in upholding the order of the CIT(A) deleting addition of Rs.19.45 lakhs on account of change in the method of accounting.
5. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the AO was not justified in reducing the capital employed by proportionate liabilities in the new tractor division and the foundry division because it had not been demonstrated that the borrowings made by the assessee travelled to the two units?"
The matter in dispute relates to assessment year 1981-82.
Counsel for the revenue submits with respect to question No.1, that in view of the clear and unambiguous language used in Section 37(4) and 37(5) of the Income Tax Act (for short 'the Act'), as applicable to the assessment year, the Assessing Officer rightly made additions with respect to rent paid by the assessee for use of the guest house belonging to P.S.I.D.C. The Tribunal has, however, erred in deleting this addition by relying upon Section 30 of the Act. Section 30 of the Act relates to payment of rent for business premises etc., whereas Section 37(4) read with Section 37(5) of the Act specifically refers to rent paid for a ITR No. 157 of 1995 -3- guest house. The question has already been answered in favour of the revenue in United Catalysts India Ltd. Vs. Commissioner of Income Tax, (1998) 229 ITR 233 and Commissioner of Income Tax Vs. Upper Ganges Sugar Mills Ltd., (1994) 206 ITR 215.
Counsel for the assessee, however, submits that as expenditure on rent including expenditure incurred in hiring a guest house falls within Section 30 of the Act, the Income Tax Appellate Tribunal has rightly deleted this addition.
Sections 30, 37(4) & (5) of the Act read as follows:-
"30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed-
(a) where the premises are occupied by the assessee-
(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;
(b) any sums paid on account of land revenue, local rates or municipal taxes;
(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.
xxx xxx xxx xxx xxx
37(4). Notwithstanding anything contained in sub-
section(1) or sub-Section (3),-
ITR No. 157 of 1995 -4-
(i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub- section referred to as "guest-house")
(ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in guest-house.
xxx xxx xxx xxx xxx (5) for the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest-house within the meaning of sub-section(4)."
Section 30 of the Act allows deduction of expenditure incurred on rent, rates, taxes, repair of premises used for the purpose of business or profession. The use of the word 'profession' in Section 30 of the Act may appear to suggest that guest house expenses can be allowed as a deduction. However, a perusal of Section 37(4) of the Act, which commences with a non-obstantive clause reveals that ITR No. 157 of 1995 -5- no allowance shall be made in respect of any expenditure incurred by the assessee, after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest house. Section 37(5) of the Act further clarifies that any accommodation by whatever name maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding to any person on tour or visiting of a place at which such accommodation is situated, shall fall within the meaning of guest house, used in sub-section 4 of Section 37 of the Act.
Sections 37(4) and (5) of the Act are unambiguous in their intent and purpose that expenditure claimed by an assessee on account of guest house charges would not fall under Section 30 of the Act and therefore, cannot be allowed as a deduction. The Tribunal has, therefore, erred in deleting the addition made by the Assessing Officer by relying upon Section 30 of the Act. The first question is, accordingly, answered in favour of the revenue by holding that payment of guest house charges cannot be allowed as a deduction.
The second question briefly put is whether subscription paid directly in the form of cash cannot be treated as a perquisite in view of Section 40-A (5)(a) (ii) of the Act. Counsel for the revenue submits that as subscription paid to professional institutions and clubs are part and parcel of the salary paid to an employee it must ITR No. 157 of 1995 -6- partake the nature of perquisites and therefore, such payments are to be treated as perquisites being not convertible into money/cash.
Counsel for the assessee relies upon a judgment of Delhi High Court in Commissioner of Income Tax Vs. Shriram Refrigeration Industries Ltd., (1993) 110 CTR (Del) 60 and a judgment of the Madras High Court in Commissioner of Income Tax Vs. Madras Rubber Factory Ltd., (1996) 131 CTR (Mad) 222, to contend that cash payment made on behalf of an employee is not a perquisite and therefore, cannot be disallowed under Section 40-A (5) (ii) of the Act.
A due consideration of the facts reveals that subscription has been made to professional institutions and clubs. The subscription, therefore, cannot be treated as a perquisite under Section 40(A) (5a) of the Act. Reliance may be placed upon a judgment of the Delhi High Court in Commissioner of Income Tax Vs. Shriram Refrigeration Industries Ltd.(supra). The second question is answered, accordingly, against the revenue.
The third question is whether the Income Tax Appellate Tribunal has erred by allowing extra shift allowance on the basis of the concern as a whole working as an extra shift?
Counsel for the revenue submits that extra shift allowance can only be allowed for the relevant numbers of ITR No. 157 of 1995 -7- days, but the Tribunal has allowed the assessee's claim by relying upon instruction No.1605 dated 26.2.1985 issued by the Central Board of Direct Taxes. The Assessing Officer, while taking a view contrary to the view in the circular relied upon the judgment of this Court in Saraswati Industrial Syndicate Vs. CIT, 136 ITR 361.
A due consideration of the arguments reveals that the ITAT has relied upon a circular issued by Central Board of Direct Taxes while holding in favour of the assessee. A perusal of the judgment in Saraswati Industrial Syndicate's case (supra) reveals that it does not pertain to extra shift allowance and is, therefore, irrelevant. The question has even otherwise already been answered in favour of assessees by the Hon'ble Supreme Court in South India Viscose Ltd. Vs. Commissioner of Income Tax, (1997) 141 CTR (SC) 374 and as a consequence, the question is answered against the revenue.
As regards the question No.5, the controversy is covered against the revenue by circular No.380, dated 10.04.1984, issued by the Central Board of Direct Taxes and a judgment of the Bombay High Court in the case of Indian Oil Corporation Vs. S. Rajagopalan ITO, (1973) 92 ITR 241 (Bom). Counsel for the revenue is unable to raise any meaningful argument against the circular or the aforesaid judgment. We consequently hold against the revenue and ITR No. 157 of 1995 -8- answer the question accordingly.
The questions of law having been answered, the reference is disposed of accordingly.
( RAJIVE BHALLA )
JUDGE
8.12.2014 (B.S. WALIA)
monika JUDGE
JUDG
MONIKA VERMA
2015.02.04 13:13
I attest to the accuracy and
authenticity of this document
chandigarh