Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Mohan Meakin Breweries on 23 October, 1986
Equivalent citations: [1987]20ITD179(DELHI)
ORDER
M.C. Agarwal, Judicial Member [1 to 3. These paras are not reproduced here as they involved minor issues.]
4. The next ground reads as under :
On the facts and in the circumstances of the case, the Commissioner (Appeals)IX, New Delhi was not justified in reducing the disallowance of Rs. 5,43,804 made by the ITO under the head 'Rest house expenses' by Rs. 27,834 plus Rs. 61,795 (total Rs. 89,609) on account of depreciation and repairs to buildings respectively.
The contention of the learned departmental representative was that since under Section 37(4) of the Income-tax Act, 1961 ('the Act'), no expenditure whatsoever incurred by the assessee on the maintenance of a guest house can be allowed, the learned Commissioner (Appeals) was wrong in allowing the expenditure on account of repairs and depreciation.
5. The assessee was maintaining a guest house on which the total expenditure amounted to Rs. 5,54, 804 out of which Rs. 27,814 represented depreciation on buildings and furniture and fittings and a sum of Rs. 61,795 represented repairs. According to the learned Commissioner (Appeals), the expenses on these two items were allowable under Section 32 of the Act and, therefore, they were not covered by Section 37. Therefore, while confirming the disallowance of the other expenditure, the learned Commissioner (Appeal) allowed deductions in respect of two items aforesaid.
6. The method of computation of business income is provided in Section 28 onwards of the Act. Section 30 of the Act provides for a deduction in respect of expenses on rent, rates and taxes, repairs and insurance for buildings used for the purposes of business. Section 32 then provides for depreciation. Section 37 is in the nature of a residuary clause and provides that any expenditure not being of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purposes of business shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Sub-section (3) of Section 37 is in the nature of proviso to Section 37 and reads as under :
(3) Notwithstanding anything contained in Sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.
Then Sub-section (4) of Section 37 is a further proviso not only to Subsection (1) but also to Sub-section (3) aforesaid and it provides that no allowance shall be made in respect of any expenditure incurred on residential accommodation in the nature of a guest house. Sub-clause (ii) of Section 37(4) thereof further provides that no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in a guest house. Thus, Sub-clause (z) of Subsection (4) of Section 37 is general and covers all expenditure on the maintenance of a guest house. This would cover repairs to the building. Sub-clause (ii) is specific and covers the notional expenditure in the nature of depreciation. Thus, both the items in question which have been allowed by the learned Commissioner (Appeals) are covered by Sub-clauses (i) and (ii) of Section 37(4). The question merely is whether this expenditure can be allowed under Sections 30 and 32. The learned counsel for the assessee defended the action of the Commissioner (Appeals) by pointing out that Sub-section (3) of Section 37 only excludes expenditure of a general nature covered by Section 37(1) and, therefore, expenditure on repairs which is covered by Section 30 and depreciation which is covered by Section 32 would not be barred by Section 37(3). This, in our view, would have been the position if Sub-section (4) of Section 37 had not been enacted. Sub-section (4) which was enacted several years after Sub-section (3), specifically deals with expenditure on the maintenance of the guest house as well as with the notional allowance for depreciation of any building used as a guest house or of any assets used in the guest house. Sub-section (1) of Section 37 specifically excluded from its operation expenditure 'not being expenditure of the nature described in Section 30 to Section 36'. Sub-section (4) begins by saying 'notwithstanding anything contained in Sub-section (1) or Sub-section (3)'. Therefore, when subsection (4) excludes Sub-sections (1) and (3) of Section 37, it extinguishes the exclusionary words 'not being expenditure of the nature described in Sections 30 to 36' used in Section 37. The effect of the non obstante clause in Sub-section (4), therefore, is that it overrides all other provisions in the Act wherever they may be found. Even otherwise it is settled rule of interpretation of statutes that the specific overrides the general. Sub-sections (3) and (4) of Section 37, specifically deal with certain types of expenditure and, therefore, they will override the general provisions contained, inter alia, in Sections 30 and 32. In our view, therefore, the learned Commissioner (Appeals) was wrong in allowing deductions on account of repairs and depreciation connected with the guest house. We, therefore, cancel his order on this point and restore the one made by the ITO.
7 to 13. [These paras are not reproduced here as they involved minor issues.]