Punjab Tractors Limited, Mohali v. Commissioner Of Income Tax, Patiala

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 60 of 2001 Date of Decision: April 26, 2010 Punjab Tractors Limited, Mohali ..Appellant Versus Commissioner of Income Tax, Patiala ...Respondent CORAM:HON'BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE JITENDRA CHAUHAN Present:Mr. Pankaj Jain, Advocate, for the assessee-appellant Ms. Urvashi Dhugga, Advocate, for the revenue-respondent. 1.To be referred to the Reporters or not?Yes2.Whether the judgment should be reported inYes 2.Whether the judgment should be reported inthe Digest? M.M. KUMAR, J. This appeal filed under Section 260-A of the Income-taxAct, 1961 (for brevity, ‘the Act’), challenges order dated 27.7.2000,passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’,Chandigarh, in I.T.A. No. 838/Chandi/1994, in respect of AssessmentYear 1987-88. The assessee-appellant has sought to raise the followingsubstantial question of law:- “Whether the Tribunal was correct in law on the facts andcircumstances of the case in disallowing the Guest Houseexpenses which are amounting to Rs. 9,59,60/- allowable under Section 30 read with Section 32 or they are to bedisallowed under Section 37(4)?” 2.Brief facts of the present case are that return of income inrespect of the assessment year 1987-88, was filed on 19.10.1987, whichwas processed under Section 143(3) and the Assessing Officer made anaddition of Rs. 95,960/- claimed by the assessee-appellant as expenseson rents, repair, taxes and maintenance of Guest House. The additionwas made primarily on the ground that the rent on the Guest Houseexpenses are covered under the provisions of Section 37(4) and, thus,the same could not have been allowed under Section 30. On the otherhand, the assessee-appellant sought the benefit under Section 30 on theground that the rent is covered under the provisions of that section andnot under Section 37, which is a residuary provision. Against the orderpassed by the Assessing Officer, the assessee-appellant filed an appealbefore the CIT(A), which was allowed vide order dated 23.2.1994 (A-2). The revenue-respondent then preferred an appeal before theTribunal. The Tribunal decided the issue against the assessee-appellant,vide order dated 27.7.2000. Thereafter, the assessee-appellant filed amiscellaneous application for recalling of order dated 27.7.2000. Theopinion of the Tribunal on the aforesaid issue is explicit from theperusal of para 8 of the judgment, which reads thus:- “8.We have carefully considered the rival submissionsand examined the facts, evidence and material onrecord. We have also referred to the orders of theauthorities below and the decision of the ITAT in thecase of the assessee for earlier year where the ITATand examined the facts, evidence and material onrecord. We have also referred to the orders of theauthorities below and the decision of the ITAT in thecase of the assessee for earlier year where the ITAT has held that rent paid in respect of the guest housewas allowable deduction u/s 30 of the Act. We havealso referred to the judgement of the Kerala HighCourt in the case of United Catalysts India Ltd.(Supra) where by referring to the provisions of sub-sections (4) and (5) of section 37, introduced w.e.f.28[th] February, 1970, the High Court held that theseclearly prohibited allowing deduction in respect ofexpenditure incurred for the maintenance of a guesthouse. The Hon’ble Kerala High Court has alsoreferred to the two decisions in the cases of CIT vs.Ahmedabad Mfg. and Calico Printing Co. Ltd. 197I.T.R. 538 and CIT vs. Chase Bright Steel Ltd. 177I.T.R. 124 and has taken a view that after theintroduction of sub-section (4) and (5) of section 37,expenditure on the maintenance of guest house willnot be allowable under section 30 of the Act. Therelevant paragraph at page 237 of 229 I.T.R. isreproduced below:- “A reading of sub-section (4) and moreclarified by sub-section (5) would clearly showthat any accommodation by whatever namecalled, maintained, hired, reserved or arrangedby the assessee for providing boarding orlodging to any person on tour or visit to theplace at which such accommodation is situated, will be treated as accommodation in the natureof a guest house and that no allowance shall bemade in respect of any expenditure incurred bythe assessee after February 28, 1990 on themaintenance of any such guest house. Itcannot be contended that in spite of the aboveprovisions specifically relating to guest house,the assessee can still put forward a claim underthe general provisions of section 30. LearnedCounsel for the assessee relied on the decisionsin CIT vs. Chase Bright Steel Ltd. (No. 1)(1989) 177 I.T.R. 124 (Bom) and CIT vs.Ahmedabad Mfg. and Calico Printing Co. Ltd.(1992) 197 I.T.R. 538 (Guj) in support of itscontention. On examining these decisions, wefind the first decision, which is rendered by theBombay High Court, considered a case prior tothe introduction of sub-sections (4) and (5) ofsection 37. The second decision which wasrendered by the High Court of Gujarat, justfollowed the Bombay High Court’s decisioneven though, by that time, sub-section (4) ofSection 37 had been introduced. We are notinclined to follow the above decisions in thepresent case.” Obviously, when ITAT Chandigarh Bench considered this case on 29.11.1994, it did not havethe benefit of the judgement of the Kerala High Courtwhich was delivered on 9[th] December, 1996.Besides, the Calcutta High Court in the case of CITvs. Upper Ganges Sugar Mills Ltd. 206 I.T.R. 215has also held that the language of sub-section (4) ofsection 37 of the Income Tax Act is quite emphaticand provides that no allowance at all is intended inrespect of any expenditure incurred after February28, 1970, on the maintenance of any residentialaccommodation in the nature of guest house. Theprohibition against the allowance of maintenanceexpenditure in respect of guest house is unmitigated.Respectfully following the judgements of the KeralaHigh Court and Calcutta High Court, we hold thatexpenditure by way of rent forms part of themaintenance of guest house and is, therefore, notallowable u/s 30 of the Act. Accordingly, we setaside the order of the CIT(A) and restore that of theA.O. This ground of appeal is allowed.” 3.Mr. Pankaj Jain, learned counsel for the assessee-appellantat the outset has argued that the aforesaid question stands answered byHon’ble the Supreme Court in the case ofBritannia Industries Ltd.v.Commissioner of Income-tax, [2005] 278 ITR 546 (SC). He haspointed out that the intention of the legislature was to exclude frombenefits of deduction, the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guesthouse of the nature indicated in sub-section (4) of Section 37 of the Act.According to the learned counsel had the legislature intended thededuction to be allowable in respect of all types ofbuilding/accommodation used for the purposes of business or professionthen it would not have felt the necessity to amend the provisions ofSection 37 so as to make a definite distinction with regard to buildingused as guest house as defined in Section 37(5) and the provisions ofSection 31 and 32 would have been sufficient for that purpose. It is,thus, conceded that after February 28, 1970 (w.e.f. 1.4.1970) whenamendment was incorporated by way of adding sub-section (4) ofSection 37 of the Act, there was clear prohibition to allow deduction inrespect of expenditure incurred for maintenance of guest house.Accordingly, he has submitted that the question stand already decided infavour of the revenue and against the assessee. 4.In view of the fair stand taken by Mr. Pankaj Jain, learnedcounsel for the assessee-appellant, Ms. Urvashi Dhugga has simplysubmitted for dismissal of the appeal as the matter is covered in favourof the revenue-respondent by the judgment of Hon’ble the SupremeCourt rendered in the case of Britannia Industries Ltd. (supra).5.As a sequel to the above discussion, the question is decidedagainst the appellant-assessee and in favour of the respondent-revenue. (M.M. KUMAR)JUDGE April 26, 2010 Pkapoor (JITENDRA CHAUHAN) JUDGE