Madras High Court
The Commissioner Of Income Tax vs South India Viscose Limited (2003) 259 ... on 16 April, 2009
Author: K.Raviraja Pandian
Bench: K.Raviraja Pandian
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 16.04.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal)Nos.1129 to 1132 of 2006 The Commissioner of Income Tax Madurai Appellant v. M/s Ramco Industries Ltd No.47, P.S.K.Nagar Rajapalayam Respondent Tax Case Appeals filed under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench, Chennai, dated 07.10.2005 passed in ITA Nos.950,951, 1044, 1128/Mds/2000. For appellant : Mrs.Pushya Sitaraman For Respondent: Mr.P.J.Rishikesh JUDGMENT
(Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The revenue on appeal against the order of the Income Tax Appellate Tribunal, dated 07.10.2005 passed in ITA Nos.950,951, 1044, 1128/Mds/2000 in respect of the assessment years 1995-96 and 1996-97.
2. For the assessment years 1995-96 and 1996-97, the assessee filed its return of income. The Assessing Officer inter-alia disallowed the rent paid for guest house u/s 37(4); expenditure on sieve cylnder and motor and templates as capital expenditure. The Assessing Officer also held that sales tax and excise duty elements are to be included in the total turnover for the purpose of calculation of deduction u/s 80HHC. On appeal, the Commissioner of Income Tax (Appeals) confirmed the disallowance on guest house expenditure, upheld the action of the Assessing Officer on the issue of inclusion of sales tax and excise duty in the total turnover for 80HHC, and decided the issue regarding replacement of machinery and templates in favour of the assessee. The Tribunal on appeal held all the above issues in favour of the assessee. The correctness of the same is now canvassed before this Court in these appeals by formulating the following questions of law:-
"1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that expenditure on renting and maintaining a guest house is allowable as a business expenditure?
2. Whether in the facts and circumstances of the case, the Tribunal was right in excluding sales tax and excise duty from the total turnover for the purpose of calculation of benefit u/s 80HHC?
3. Whether in the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts spent on replacement of machinery as revenue expenditure?
4. Whether in the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts spent on purchase of templates as a revenue expenditure?
3. We have heard the argument of the learned counsel on either side and perused the materials available on record.
4. The first question of law viz., whether expenditure on renting and maintaining a guest house is allowable as a business expenditure has been decided in favour of the assessee by this Court in the case of CIT vs. South India Viscose Limited (2003) 259 ITR 107. The Supreme Court reversed the same and held in favour of the revenue in the case of Britannai Industries Ltd., vs. Commissioner of Income Tax and another reported in 2005 278 ITR 546 (SC), wherein the Supreme Court has held as follows:-
"While the expression "premises and buildings" in Sections 30 and 32 of the Income Tax Act, 1961, and the expression "residential accommodation including any accommodation in the nature of guest house" in sub-sections (3), (4) and (5) of section 37 can be similarly interpreted, a distinction has been sought to be introduced for the purpose of section 37 by specifying the nature of the building to be a guest house. The intention of the Legislature is clear and unambiguous : the intention was to exclude from deduction the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guest house of the nature indicated in sub-section (4) of section 37. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodation used for the purpose of the business or profession, then the Legislature would not have felt the need to amend the provisions of section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in section 37(5) and the provisions of sections 31 and 32 would have been sufficient for that purpose.
When the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give a meaning which would cause violence to the provisions of the statute".
Hence the first question of law is to be answered in favour of the revenue, against the assessee and answered as such.
5. The 2nd question of law viz., exclusion of sales tax and excise duty from the total turnover for the purpose of calculation of benefit u/s 80HHC, is covered by the decision of the Supreme Court in the case of CIT v. Lakshmi Machine Works, (2007) 290 ITR 667, wherein the Supreme Court has held as follows :
"The principal reason for enacting a formula in section 80HHC of the Income Tax Act, 1961, is to disallow a part of the concession thereunder when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words "total turnover" in the formula in section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the 'total turnover' under section 80HHC(3); otherwise, the formula becomes unworkable."
6. In respect of the 3rd and 4th questions of law, in allowing deduction of the amounts spent on replacement of machinery as revenue expenditure and purchase of templates as a revenue expenditure, they are covered by the decision of the Supreme Court in the case of Commissioner of Income Tax vs.Ramaraju Surgical Cotton Mills reported in 294 ITR 328, wherein it was argued before the Supreme Court that replacement of assets without increasing the production capacity would amount to revenue expenditure. However, there was no material regarding the production capacity remaining constant even after replacement. On those factual situation, the Apex Court remanded the matter back to the Commissioner (Appeals) for to decide afresh. In these cases also, all the orders have been passed only following the earlier decision of this Court in Commissioner of Income Tax (Appeals) vs. Janakiram Mills Limited reported in 275 ITR 430. The matter require to be remitted back to the Commissioner of Appeals for re-consideration as per the law laid down by the Apex Court in the case of Commissioner of Income Tax vs.Ramaraju Surgical Cotton Mills reported in 294 ITR 328. Hence, in respect of the 3rd and 4th questions of law, the matter is remitted back to the Commissioner of Income Tax Appeals. The appeals are disposed of accordingly.
rg To The Income Tax Appellate Tribunal, Chennai 'C' Bench, Chennai