Kerala High Court
Commissioner Of Income-Tax vs Travancore Cements Ltd. on 6 November, 1996
Equivalent citations: [1999]240ITR825(KER)
JUDGMENT V.V. Kamat, J.
1. We are expected to answer the following question :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the repairs will not fall within the mischief of Section 37(3A) of the Income-tax Act, 1961 ?"
2. The assessee is a public limited company engaged in the production of white cement. For the assessment year 1984-85, the Income-tax Officer disallowed an amount of Rs. 1,94,889 under Section 37(3A) with reference to expenses such as advertisement, payment to hotels and motor car expenses.
3. The matter was taken up before the Commissioner of Income-tax (Appeals) to argue that repairs to car allowed under Section 31 must be excluded while making disallowance.
4. The first appellate authority considered the question in paragraph 6 of its judgment. It was argued that under Section 31 of the Act, the car expenses would have to be excluded. The first appellate authority decided that under Section 37(3A) disallowance can be made on such expenses as are allowed under Section 37(1) of the Act only. Therefore with regard to the car expenses amounting to Rs. 48,201, the first appellate authority granted deduction in regard thereto:
The matter was taken up before the Income-tax Appellate Tribunal, Cochin Bench, by the Revenue. The Tribunal held that Section 37 would exclude from its purview the expenditure described in Sections 30 to 36. The reasoning further proceeded to observe that repair expenses would fall under Section 31 and therefore to that extent repairs to the motor car would be expenditure outside the purview of Section 37. The Tribunal further observed that Section 37(3A) starts with a non-obstante clause and that is with reference to the provisions relating to the expenditure mentioned in Section 37(1). The Tribunal pointed out that the expenditure mentioned in Section 37(1) would have to be understood to be exclusive of the expenditure described in Sections 30 to 36. On the basis of this reasoning the Tribunal confirmed the decision of the first appellate authority.
5. We had an occasion to consider this aspect in our judgment dated September 2, 1996 (I. T. R. Nos. 88 of 1992 and 53 of 1991--CIT v. Navodaya [1997] 225 ITR 399). In the process of reasoning we had an occasion to understand and interpret the statutory provision of Section 37(3A) of the Income-tax Act, 1961. We have observed that the expenditure in the context would require for consideration its connection with the nature of the expenditure, whether it is capital expenditure or whether it is revenue expenditure. We have further observed that in understanding the said statutory provision (section 37(3A), the importance of the non-obstante clause "notwithstanding anything contained in Sub-section (1)" would be necessary.
6. We have considered the position in the following manner : the statutory provisions relating to profits and gains of business or profession are found from Section 28 onwards of the Income-tax Act, 1961. They relate to consideration of certain allowances, depreciation and deduction. The provision relating to deduction from expenditure is one amongst the said provisions, and with reference to the group, Section 37 is the last one and even as such headed as "General" in the process.
7. We have considered the intrinsic material from Section 37 by way of an aid. Section 37(1) speaks of expenditure laid out or expended wholly or exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". We have also emphasised situations of exception to this kind of allowance contemplated in the statutory provision of Section 37(1) of the Act. In the process we have further observed that an expenditure would necessarily have to be an expenditure of the nature described in Sections 30 to 36 and Section 80W of the Act, it being in the nature of capital expenditure or the personal expenses of the assessee, has been referred to by us to state that. In other words, the other clauses which are prefixed by the same and identical non-obstante clause will have to be held de hors the statutory provision of Section 37(1) of the Act in view of the position that each one of them is in the same position.
8. It is in the light of this reasoning we have taken up Section 37(3A) of the Act and (3B) thereof, to observe that it relates to the expenditure, nay, the aggregate expenditure incurred by an assessee and we have consequently held that any amount of such expenditure in excess of one hundred thousand rupees would meet with the statutory consequences to the effect that twenty per cent. of such excess amount shall not be allowed as deduction in computing the income chargeable under the head "Profits and gains of business or profession". We have also taken into consideration what we have described as the real question as to whether in understanding the expenditure or the aggregate expenditure, the provisions of Section 37(1) of the Act would have any occasion of interplay. Reading the plain language of all the statutory provisions other than Section 37(1) of the Act, we have held that it would be obvious that each one of the subsequent provisions gets enacted with the same prefix of the non-obstante clause which means that Section 37 is of a residuary character with reference to the earlier statutory provisions of dealing with the aspect of deduction except Section 37(1) of the Act. The conclusion, we have held, that flows from the above decision is that the statutory provision of Section 37 of the Act relates to any expenditure in the process of computing the income chargeable under the head "Profits and gains of business or profession". The expenditure is thus relatable to the income chargeable. We have observed that every other sub-section of Section 37 of the Act will have to be understood as equally placed controlling the respective statutory provisions of other sub-sections which would be the plain language of the statutory provisions.
9. The process of reasoning provides complete answer to the question to be answered by us which is reproduced at the outset.
10. It must be stated that learned counsel submitted that the scope and applicability of the ground of Sections 30 to 36 would have its effect in understanding the statutory provision of Section 36 under consideration. We are afraid because we find that this aspect is also considered by us, when we observed that other clauses which are prefixed by the same and identical non-obstante clause will have to be read de hors to Section 37(1) of the Act in view of the fact that each one of them is seen prefixed by the same non-obstante clause. In other words, all the sub-sections of Section 37 other than Section 37(1) are independent provisions limiting in accordance therewith what is to be granted in regard thereto. As in our decision under consideration, for application to the present proceedings, the Income-tax Officer considered the expenses to be considered for the disallowance under Section 37(3A) in the following manner :
Rs.
(1) Advertisement 8,34,689 (2) Payment to hotels 1,45,852 (3) Motor car expenses 1,10,526 10,91,067
11. In regard to which it was claimed on behalf of the assessee that under motor car expenses Rs. 48,201 was spent on repairs to the car and salary to drivers which was disallowed by the officer being unable to treat them as the expenses on running and maintenance of motor cars. In our judgment the approach of the Income-tax Officer will have to be endorsed.
12. For the above reasons we answer the question in the negative--in favour of the Revenue and against the assessee.
13. A copy of this judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.