Income Tax Appellate Tribunal - Chandigarh
Joint Commissioner Of Income Tax vs Jamuna Auto Industries Ltd. on 24 August, 2004
Equivalent citations: (2005)92TTJ(CHD)920
ORDER
N.K. Saini, A.M.
1. This is an appeal by the Department against the order of learned CIT(A), dt. 13th March, 2000, for the asst. yr. 1994-95.
2. The only ground raised in this appeal reads as under :
"On the facts and the circumstances of the case, the learned CIT(A) has erred in law in allowing a relief of Rs. 1,12,550 out of total addition of Rs. 1,67,638 made on account of guest house expenses."
3. At the time of hearing, nobody was present on behalf of the assessee. However, written submission had been sent which we have considered while disposing off this appeal.
4. The facts in brief related to this issue are that the assessee filed its return of income declaring a loss of Rs. 52,26,120 on 30th Nov., 1994, which was processed under Section 143(1)(a) on 27th March, 1995. However, later on, the case was picked up for scrutiny. During assessment proceedings the AO observed that in the tax audit report, guest house expenses had been reflected at nil. However, on examination of accounts of the assessee, it was noticed that the assessee was maintaining a guest house at East of Kailash, New Delhi which was termed as transit house. The AO mentioned that in the assessment order for 1993-94, the above transit house had been considered as guest house and that view had been upheld in the appeal, The AO noticed that the assessee incurred expenditure of Rs. 1,02,000 for rent, Rs. 22,963 for food expenses, Rs. 5,466 for telephone expenses and Rs. 16,800 towards salary, Rs. 9,859 for electricity and Rs. 5,550 as arrears of rent and the total expenditure worked out to Rs. 1,62,638. The AO estimated the depreciation for furniture provided in the premises on Rs. 5,000 as was done in the preceding order and disallowed total sum of Rs. 1,67,638 under Section 37(4) of IT Act, 1961.
5. The assessee carried the matter to the learned CIT(A) and submitted that it was having two manufacturing plants at Yamunanagar and Malanpur while the corporate office was situated at New Delhi. As such, its employees had to commute from plant to corporate office for various meetings and discussions on business strategies, etc., and in the absence of any transit house in New Delhi, the assessee should have spent for hotel expenses which in any case should have been many times more than what have been spent by the assessee and since those expenses had been incurred wholly and exclusively for the purpose of business of the assessee-company, no amount should have been considered for disallowance under Section 37(4) of IT Act, 1961. Reliance was placed on the decision of Bombay High Court in the case of CIT v. Chase Bright Steel Ltd. (1989) 177 ITR 124 (Bom).
6. Learned CIT(A), after considering the submissions of the assessee observed that the rent of Rs. 1,02,000, arrears of rent of Rs. 5,550 and the depreciation on furniture for Rs. 5,000 were the items covered under Section 30 of IT Act, 1961 and could not be disallowed as was held by the Bombay High Court in the case of CIT v. Chase Bright Steel Ltd. (supra). Accordingly, he allowed relief of Rs. 1,12,550 (Rs. 1,02,000 + Rs. 5,550 + Rs. 5,000). Now the Department is in appeal.
7. Learned Departmental Representative for the Revenue vehemently argued that the guest house expenses cannot be allowed. He also stated that by using the different nomenclature, nature of expenses would not change and since the assessee had incurred the expenses for maintaining and running the guest house may be for its own employees, expenditure cannot be allowed as per the provisions of Section 37(4) of IT Act, 1961. Reliance was placed on the following case laws :
(i) Etcher Tractors Ltd. v. Dy. CIT (2002) 77 TTJ (Del)(SB) 681 : (2003) 84 ITD 49 (Del)(SB);
(ii) Britannia Industries Ltd. v. CIT and Anr. (2002) 257 ITR 681 (Cal);
(iii) CIT v. Instrumentation Ltd. (2002) 258 ITR 513 (Raj).
8. In his rival submissions, learned counsel for the assessee in his written submissions had stated as under :
"It is submitted that the above appeal has been filed by the Revenue against the order of learned CIT(A), Patiala on the deletion of addition made on account of guest house expenses, viz., rent paid for the same and depreciation on the furniture used in the guest house.
It is relevant to point out here that this issue is covered in favour of the assessee vide Tribunal order in assessee's own case for the asst. yr. 1993-94, copy enclosed (relevant paras 21-23 at pp. 11-12).
Reliance is also placed on the following case laws wherein it was held that the expenses which are covered by Sections 30 to 36 of IT Act, 1961, are not subject to disallowance under Section 37(4) r/w Section 37(1) of IT Act, 1961.
(i) CIT v. Chase Bright Steel Ltd. (supra)
(ii) Century Spinning & Manufacturing Co. Ltd. v. CIT (1991) 189 ITR 660 (Bom)
2. Res judicata may not be applicable to income-tax cases but rules of consistency do apply. It has been so held in the following case law :
(a) Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC)
(b) CIT v. A.R.J. Securities Printers (2003) 264 ITR 276 (Del)
(c) Taraben Ramanbhai Patel and Anr. v. ITO (1995) 215 ITR 323 (Guj)
(d) CIT v. Hindustan Motors Ltd. (1991) 192 ITR 619 (Cal)
(e) Sardar Kehai Singh v. CIT (1992) 195 ITR 769 (Raj)
(f) Dhansiram Agarwalla v. CIT (1996) 217 ITR 4 (Gau)
(g) CIT v. Godavari Corporation Ltd. (1985) 156 ITR 835 (MP).
In view of the facts, circumstances and the case laws mentioned above, it is prayed that the appeal of the Revenue may kindly be dismissed."
9. After considering the rival submissions and the material available on record, it is noticed that for the preceding year, the order of learned CIT(A) had been upheld by the Tribunal Delhi Bench 'D' in ITA No. 1830/Del/1997 for asst. yr. 1993-94 order dt. 8th March, 2002, in assessee's own case by observing as under:
"21. Ground No. 5 relates to the disallowances of guest house expenses. It was clearly admitted by the counsel that some Courts have taken the view that the expenditure on account of rent, repair and depreciation of assets will fall outside the purview of Sections 37(4) and 37(5) of Act whereas the contrary views have been taken in many other cases. For this purpose, the learned counsel referred to p. 2553 of Chaturvedi & Pithisaria's book, which has incorporated these decisions. But the learned counsel stated that as has been held by Hon'ble Supreme Court in the case reported as CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and by Gujarat High Court in the case reported as CIT v. Naga Hills Tea Co. Ltd. (1973) 89 ITR 236 (SC), if there are two views on a particular issue, the view favourable to the assessee should be accepted.
22. On the other hand, the learned Departmental Representative for the Revenue has supported the orders of the AO and the learned CIT(A),
23. We have considered the rival submissions. We agree with the learned counsel for the assessee that there are divergent views on the subject. We also find that no claim has been made to the effect that the guest house has been exclusively used by the staff members. Keeping in view the decision reported in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and CIT v. Naga Hills Tea Co. Ltd. (1973) 89 ITR 236 (SC), we hold that where there were two views possible on issue, the view favourable to the assessee should be followed. Relying upon the same, we hold that the addition sustained by the learned CIT(A) was not justified and the same is deleted."
From the above observation, it would be clear that the order of learned CIT(A) had been confirmed only on the basis that there were divergent views on the subject and if there were two views possible on a issue, the view favourable to the assessee should be followed. The Tribunal had passed the order on 8th March, 2002, in assessee's own case in ITA No. 1830/Del/1997 for asst. yr, 1993-94. Since there were divergent views not only on the various High Court levels but also at the level of the Tribunals, therefore, to overcome this situation, Special Bench had been constituted to resolve the problem in the Tribunal Delhi Bench 'B' in the case of Eicher Tractors Ltd. v. Dy. CIT (supra). The Special Bench of the Tribunal held as under:
"With a serious attempt on the part of the Government to curb lavish expenditure on maintenance of guest houses, there was specific and avowed intention to disallow expenditure incurred after 28th Feb., 1970, on the maintenance of a guest house and Explns. (i) and (ii) to Section 37(4) and Section 37(5) were worded in the widest possible terms to include within their sweep every type of expenditure incurred on the maintenance of a guest house. Section 37(4)(ii) prohibited allowance of depreciation on a building used as a guest house as also depreciation on assets in a guest house and Expln. (ii) to Section 37(4) stated that expenditure incurred on maintenance of a guest house would include rent paid in respect of such accommodation.
Sections 30 and 31 deal with rent, repairs, etc., of buildings, plant and machinery and furniture, etc., whereas Section 32 deals with depreciation on various types of assets including buildings, etc. These sections stipulate that the use of the asset is for the purpose of business and profession. As against this, Section 37(1) refers to expenditure not being expenditure of the nature described in Sections 30 to 36 and not being the personal expenditure of the assessee, but expenditure laid out or expended wholly and exclusively for the purpose of business or profession. Going still further, Section 37(4) deals with expenditure pertaining to the maintenance of a guest house as also depreciation on such guest house and going further depreciation on any asset in a guest house.
Apparently, Section 37(4) is a specific provision whereas Sections 30, 31 and 32 are general provisions and former overrides the latter.
In the case of Asstt. CIT v. Trade Links Ltd. (1995) 54 ITD 108 (Del), the Delhi Bench of the Tribunal held that the provisions contained in Section 37(4) and (5) are specific pertaining to a guest house alone whereas provisions contained in Sections 30 and 32 are general. It was observed therein that there is an apparent conflict between the provisions as contained in Sections 30, 31 and 32 vis-a-vis Section 37(3), (4) and (5); that there are two provisions, one whereby the expenditure relating to rent and depreciation is allowable and the other where it has been specifically disallowed as is the case in Sub-section (4) and Sub-section (5) of Section 37; and that Sub-section (4)(ii) of Section 37 clearly makes a reference to disallowance in respect of depreciation of any building used as a guest house or depreciation of any asset in a guest house.
Section 30 refers to rent paid by any tenant in respect of the premises used for the purposes of business or profession. Similar is the case in respect of Section 32 which makes a reference to depreciation in respect of any building, machinery, plant or furniture owned by the assessee. These sections are wide enough to cover any types of premises whereas it is not so in the case of Section 37(4) and (5) which is very specific and pertains to a guest house alone. On a comparison of the two provisions viz., Section 37(4) r/w Section 37(5) with Sections 30 and 32, it would be clear that the former is more specific and the latter more general. In clear and unambiguous terms, the legislature has used the words 'rent and depreciation'. Though the latter is not covered in the expression 'expenditure' as held by the Hon'ble Supreme Court in the case of Pandyan Insurance Co. Ltd. v. CIT (1965) 55 ITR 716 (SC), yet these expressions find a place in Sub-section (4) of Section 37 which goes to show that allowance relating to appreciation has. been covered in the Sub-section intentionally. Thus, if viewed in the light of intention of the legislature, the deduction in respect of rent and depreciation is not allowable as per the provisions of Sections 37(4) and (5).
In the circumstances, the expenditure relating to rent and allowance relating to depreciation pertaining to the guest house is not allowable. Thus, the tax authorities were justified in rejecting the claims on account of rent and repairs qua guest house."
Since the facts of the present case are similar to the facts of the assessee's case and the order of Special Bench dt. 4th Oct., 2002, had been passed after the order of the Tribunal, Delhi Bench 'D', in assessee's own case for asst. yr. 1993-94 which was dt. 8th March, 2002. It is well-settled that-
"In the hierarchical system of Courts which exists in our country, it is necessary for each lower tier to accept loyally the decision of higher tier. Judicial system only works if someone is alleged to have such word and the last word once spoken is loyally accepted."
Since the Special Bench had been constituted to resolve the discrepancy, i.e., variation in the decision of various Benches of the Tribunal on the same issue, therefore, the decision of Special Bench is binding on all the Benches of Tribunal, particularly when the facts are similar and there is no contrary decision by the Hon'ble jurisdictional High Court or the Hon'ble apex Court. In these circumstances, we hold that the issue is covered against the assessee in view of the decision of Tribunal, Special Bench in the case of Eicher Tractors Ltd. v. Dy. CIT (supra) and not by the decision of Tribunal, Delhi Bench 'D', New Delhi, in assessee's own case for asst. yr. 1993-94. We may mention here that Hon'ble Calcutta High Court on a similar issue in the case of Britannia Industries Ltd. v. CIT and Anr. (supra) held as under :
"Sub-section (4) of Section 37 of IT Act, 1961 clearly states that "notwithstanding anything contained in Sub-section (1) or Sub-section (3), no allowance shall be made in respect of any expenditure.... On the maintenance of.....a guest house." With regard to depreciation, the main section is Section 32. No depreciation can ever be claimed under the residuary section which is Section 37(1). Section 37(4) clearly states that depreciation for guest houses is not allowed. No doubt could exist in this matter and an open question of law could not still be said to remain in this regard.
Since repairs are mentioned in Section 30, the general Section 37(1) cannot have any operation. The phrase "notwithstanding anything contained in Section 37(1)" cannot detract from the power, extent and validity of Section 37(4). These non obstante clauses are added to increase the effectiveness of the section, or Sub-section, and not for the reverse purpose. Thus, the Court has to read Section 30 along with Section 37(4). Section 30 is the general section for all buildings. Section 37(4) is the special section for buildings which are guest houses. The disallowance as per the special section is specially enacted and it prevails.
Maintenance is not specially mentioned in any of the Sections 30 to 36. Thus, maintenance is appropriately a subject-matter of Section 37(1). If this is so, the limitation of Section 37(4) operates without any arguments being available against it. This is because Section 37(4) is clearly applicable, notwithstanding anything contained in Section 37(1).
The main general section dealing with rent is Section 30. This is with regard to rent for all buildings of the assessee in general. Rent for guest houses is specially excluded from claims of deduction by Section 37(4). Rent can never be claimed under the residuary provision engrafted by way of Section 37(1) when a special section already exists for it. Reading the general Section 30 and the special Section 37(4), there is no way but to allow the special section to prevail. If that were not done, it would never have any operation and any assessee could claim deductions for rent of guest houses notwithstanding the existence of specific contrary provisions in the Act prohibiting them."
In our opinion, the ratio laid down by the Hon'ble Calcutta High Court is also squarely applicable to the facts of the present case. In that view of the matter also, we set aside the order of learned CIT(A) and restore the disallowance made by the AO. Since Section 30 of IT Act, 1961 is a general section and Section 37(4) is special section, therefore, latter should prevail and the learned CIT(A) had allowed relief only on the basis that rent, arrears of rent and depreciation on furniture were items covered under Section 30 of IT Act, 1961. However, he had not considered Section 37(4) which is special section and deals with disallowances to be made for the expenses related to guest house. On a similar issue, the Hon'ble Rajasthan High Court in the case of CIT v. Instrumentation (supra) held as under:
"A combined reading of Section 30 of the IT Act, 1961 and Sub-sections. (1), (3) and (4) of Section 37 makes it clear that the rent allowable under Section 30 is general in nature. Section 37(1) starts with a non obstante clause and provides that any expenses which are not covered under Sections 30 to 36 shall be allowed under Section 37. Sub-section (3) has specifically allowed expenses on a guest house, which have been incurred after 31st March, 1964. Sub-section (4) also starts with a non obstante clause and provides that any expense incurred after 28th Feb., 1970, on the maintenance of any residential accommodation in the nature of guest house, cannot be allowed. Sub-section (4) prohibits expenses incurred and allowable under Sub-sections (1) and (3) of Section 37."
It had further been held-
"That, admittedly, the expenses on the guest house had been incurred after 28th Feb., 1970. Sub-section (4) of Section 37 also starts with a non obstante clause and that prevails over other provisions of the Act, and therefore, the expenses incurred on the guest house could not be allowed under Section 30."
In view of the judgment of Hon'ble Rajasthan High Court also, the impugned order is not sustainable. Since the learned CIT(A) had allowed expenses by considering the provisions of Section 30 and without taking into consideration the provisions of Section 37(4) of IT Act, 1961, which starts with a non obstante clause which prevails over other provisions of IT Act, 1961 and therefore, expenses incurred on the guest house cannot be allowed under Section 30 of IT Act, 1961. In our opinion, the learned CIT(A) had committed an error by allowing expenses incurred on the guest house. We, therefore, reverse the order of learned CIT(A) and restore that of the AO.
10. In the result, appeal of the Revenue is allowed.