The Commissioner Of Income Tax Madurai v. M/S Ramco Industries Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 16.04.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANand THE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal)Nos.1129 to 1132 of 2006 The Commissioner of Income Tax Madurai.. Appellant in all appealsv. M/s Ramco Industries LtdNo.47, P.S.K.NagarRajapalayam Tax Case Appeals filed under section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal,Madras 'C' Bench, Chennai, dated 07.10.2005 passed in ITANos.950,951, 1044, 1128/Mds/2000 for the assessment years 1995-96,1996-97, 1996-97 and 1995-96 against the order of the Commissioner ofIncome Tax (Appeals) IX, Chennai and made in D.T.A.No.169 of 1998-99and the order of Commissioner of Income Tax (Appeals)XIII,ChennaiI.T.A.No.574 of 1999-2000 dated in 22.03.2000 respectively andagainst the order of Deputy Commissioner (IT) Special Range I,Madurai and Joint Commissioner of Income Tax,Special Range I, Maduraidated 25.03.1998 and 30.3.1999 respectively and made inP.A.N/G.I.R.No.47-016-cy-4080 and P.A.No.47-016-cy-4080 respectively. For appellant : Mrs.Pushya Sitaraman For Respondent: Mr.P.J.Rishikesh JUDGMENT (Judgment of the Court was delivered byK.RAVIRAJA PANDIAN, J.) The revenue on appeal against the order of the Income TaxAppellate 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 assesseefiled its return of income. The Assessing Officer inter-aliadisallowed the rent paid for guest house u/s 37(4); expenditure onsieve cylnder and motor and templates as capital expenditure. TheAssessing Officer also held that sales tax and excise duty elementsare to be included in the total turnover for the purpose ofcalculation of deduction u/s 80HHC. On appeal, the Commissioner ofIncome Tax (Appeals) confirmed the disallowance on guest househttps://hcservices.ecourts.gov.in/hcservices/expenditure, upheld the action of the Assessing Officer on the issue of inclusion of sales tax and excise duty in the total turnover for80HHC, and decided the issue regarding replacement of machinery andtemplates in favour of the assessee. The Tribunal on appeal held allthe above issues in favour of the assessee. The correctness of thesame is now canvassed before this Court in these appeals byformulating the following questions of law:- "1. Whether in the facts and circumstances ofthe case, the Tribunal was right in holding thatexpenditure on renting and maintaining a guest houseis allowable as a business expenditure? 2. Whether in the facts and circumstances ofthe case, the Tribunal was right in excluding salestax and excise duty from the total turnover for thepurpose of calculation of benefit u/s 80HHC? 3. Whether in the facts and circumstances ofthe case, the Tribunal was right in allowing adeduction of the amounts spent on replacement ofmachinery as revenue expenditure?4. Whether in the facts and circumstances ofthe case, the Tribunal was right in allowing adeduction of the amounts spent on purchase oftemplates as a revenue expenditure? 3. We have heard the argument of the learned counsel oneither side and perused the materials available on record. 4. The first question of law viz., whether expenditure onrenting and maintaining a guest house is allowable as a businessexpenditure has been decided in favour of the assessee by this Courtin the case of CIT vs. South India Viscose Limited (2003) 259 ITR107. The Supreme Court reversed the same and held in favour of therevenue in the case of Britannai Industries Ltd., vs. Commissioner ofIncome Tax and another reported in 2005 278 ITR 546 (SC), wherein theSupreme Court has held as follows:- 3. We have heard the argument of the learned counsel oneither side and perused the materials available on record. 4. The first question of law viz., whether expenditure onrenting and maintaining a guest house is allowable as a businessexpenditure has been decided in favour of the assessee by this Courtin the case of CIT vs. South India Viscose Limited (2003) 259 ITR107. The Supreme Court reversed the same and held in favour of therevenue in the case of Britannai Industries Ltd., vs. Commissioner ofIncome Tax and another reported in 2005 278 ITR 546 (SC), wherein theSupreme Court has held as follows:- "While the expression "premises andbuildings" in Sections 30 and 32 of the Income TaxAct, 1961, and the expression "residentialaccommodation including any accommodation in thenature of guest house" in sub-sections (3), (4) and(5) of section 37 can be similarly interpreted, adistinction has been sought to be introduced forthe purpose of section 37 by specifying the natureof the building to be a guest house. The intentionof the Legislature is clear and unambiguous : theintention was to exclude from deduction theexpenses towards rents, repairs and alsomaintenance of premises/accommodation used for thepurpose of a guest house of the nature indicated inhttps://hcservices.ecourts.gov.in/hcservices/sub-section (4) of section 37. If the Legislature had intended that deduction would be allowable inrespect of all types of buildings/accommodationused for the purpose of the business or profession,then the Legislature would not have felt the needto amend the provisions of section 37 so as to makea definite distinction with regard to buildingsused as guest houses as defined in section 37(5)and the provisions of sections 31 and 32 would havebeen sufficient for that purpose. When the language of a statute is clear andunambiguous, the courts are to interpret the samein its literal sense and not to give a meaningwhich would cause violence to the provisions of thestatute". Hence the first question of law is to be answered in favourof the revenue, against the assessee and answered as such. 5. The 2[nd] question of law viz., exclusion of sales tax andexcise duty from the total turnover for the purpose of calculation ofbenefit u/s 80HHC, is covered by the decision of the Supreme Court inthe case of CIT v. Lakshmi Machine Works, (2007) 290 ITR 667, whereinthe Supreme Court has held as follows : "The principal reason for enacting a formula in section 80HHCof the Income Tax Act, 1961, is to disallow a part of theconcession thereunder when the entire deduction claimedcannot be regarded as relating to exports. Therefore, whileinterpreting the words "total turnover" in the formula insection 80HHC one has to give a schematic interpretation. Thevarious amendments made therein show that receipts by way ofbrokerage, commission, interest, rent, etc., do not form partof business profits as they have no nexus with the activityof export. The amendments made from time to time indicatethat they became necessary in order to make the formulaworkable. If so, excise duty and sales tax also cannot formpart of the 'total turnover' under section 80HHC(3);otherwise, the formula becomes unworkable." 6. In respect of the 3[rd] and 4[th] questions of law, in allowingdeduction of the amounts spent on replacement of machinery as revenueexpenditure and purchase of templates as a revenue expenditure, theyare covered by the decision of the Supreme Court in the case ofCommissioner of Income Tax vs.Ramaraju Surgical Cotton Mills reportedin 294 ITR 328, wherein it was argued before the Supreme Court thatreplacement of assets without increasing the production capacitywould amount to revenue expenditure. However, there was no materialregarding the production capacity remaining constant even afterreplacement. On those factual situation, the Apex Court remandedthe matter back to the Commissioner (Appeals) for to decide afresh.In these cases also, all the orders have been passed only followingthe earlier decision of this Court in Commissioner of Income Tax(Appeals) vs. Janakiram Mills Limited reported in 275 ITR 430. Thehttps://hcservices.ecourts.gov.in/hcservices/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 thecase of Commissioner of Income Tax vs.Ramaraju Surgical Cotton Millsreported in 294 ITR 328. Hence, in respect of the 3[rd] and 4[th]questions of law, the matter is remitted back to the Commissioner ofIncome Tax Appeals. The appeals are disposed of accordingly. Sd/-Asst. Registrar. /true copy/Sub Asst. Registrar.rg To 1. The Asst. Registrar,Income Tax Appellate Tribunal,Chennai 'C' Bench, Chennai.2. The Commissioner of Income Tax(Appeals IX),Chennai.3. The Commissioner of Income Tax (Appeals XIII), Chennai.4. The Deputy Commissioner (IT), Special Range I, Madurai.5. The Joint Commissioner of Income Tax, Special Range I, Madurai.T.C.(A)Nos.1129 to 1132 of 2006SR(CO)EM/28.4