The Commissioner Of Income Tax, Patiala v. M/S Punjab Tractors Ltd., Monall

ITR No. 157 of 1995 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No. 157 of 1995Date of Decision: 8.127.701 The Commissioner of Income Tax, Patiala .. Appellant Versus M/s Punjab Tractors Ltd., Monall ...Respondent CORAM:- HON'BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE B.S. WALIA Present:Ms. Savita Saxena, Advocate, for the appellant. Mr. Divya Suri, Advocate, andMr. Sachin Bhardwaj, Advocate,|for the respondent. RAJIVE BHALLA, |.(Oral) The Income Tax Appellate Tribunal (hereinafterreferred to as ‘the ITAT'), Chandigarn Bench, Chandigarh, hasforwarded a reference seeking answer to tne followingquestions:- “T Whether on the facts and in the circumstances ofthe case, the [TAT was right in law in upholding the orderof the CIT(A) deleting addition of Rs.3600/- made by theAssessing Officer in view of Section 37(4) read withsection 37(5) in respect of rent paid by the assessee toP.S.1.D.C. for guest house? 2DWhether on the facts and in the circumstances ofthe case, the [TAT was right in law in holding that thesubscription paid to the employee Directors in the form ofcash payment could not be treated as perquisite becausethe very language of Section 40(A) (5) a) (ii) refers to ITR No. 157 of 1995 perquisites whether convertible into money or not? 3.Whether on the facts and in the circumstances ofthe case, the ITAI was right in law in upholaing theorders of the CIT(A) to allow extra shift allowance on thebasis of the concern as a whole working as extra shift? 4 Whether on the facts and in the circumstances ofthe case, the ITAT was rignt in law in upholding the orderof the CII(A) deleting addition of Rs.19.45 lakhs onaccount of change in the method of accounting. 5,Whether on the facts and in the circumstances ofthe case, the [TAT was right in law in holding that the AOwas not justified in reducing the capital employed byproportionate liabilities in the new tractor division and tnefoundry division because it had not been demonstratedthat the borrowings maae by tne assessee travelled to thetwo units?” The matter in dispute relates to assessment year 1981-87| Counsel for the revenue submits with respect toquestion No.1, that In view of the clear and Unambiguouslanguage used In Section 37(4) and 37(5) of the Income TaxAct (for short ‘the Act’), as applicable to the assessmentyear, the Assessing Officer rightly made aaditions withrespect to rent paid by the assessee for use of the guestnouse belonging to P.S.I.D.C. The Tribunal has, nowever,erred in deleting this addition by relying upon Section 30 oftne Act. Section 30 of the Act relates to payment of rent forbusiness premises etc., whereas Section 37(4) read witnSection 37(5) of tne Act specifically refers to rent paid fora ITR No. 157 of 1995 -3- guest nouse. The question has already been answered Infavour of the revenue InUnited Catalysts India Ltd. Vs.Commissioner of Income Tax, (1998) 229 I[TR 233andCommissioner of [ncome Tax Vs. Uoper Ganges Sugar MillsLtd., (1994) 206 /[TR 21 Counsel for the assessee, however, submits that asexpenditure on rent including expenditure incurred in hiringa guest house falls within Section 30 of the Act, the IncomeTax Appellate Tribunal nas rightly deleted this addition. sections 30, 37(4) & (5) of the Act read as follows:- “30. In respect of rent, rates, taxes, repairs aninsurance for premises, used for the purposes of thebusiness or profession, the following deductions shall bealloweaq (a)where the premises are occupied by the assessee-(1) as a tenant, the rent paid for such premises; andfurther if he has undertaken fo bear the cost ofrepairs to the premises, the amount paid onaccount of such repairs;(1) as a tenant, the rent paid for such premises; andfurther if he has undertaken fo bear the cost ofrepairs to the premises, the amount paid onaccount of such repairs; (ii) otherwise than as a tenant, the amount paid byhim on account of current repairs to thepremises;him on account of current repairs to thepremises; sections 30, 37(4) & (5) of the Act read as follows:- “30. In respect of rent, rates, taxes, repairs aninsurance for premises, used for the purposes of thebusiness or profession, the following deductions shall bealloweaq (a)where the premises are occupied by the assessee-(1) as a tenant, the rent paid for such premises; andfurther if he has undertaken fo bear the cost ofrepairs to the premises, the amount paid onaccount of such repairs;(1) as a tenant, the rent paid for such premises; andfurther if he has undertaken fo bear the cost ofrepairs to the premises, the amount paid onaccount of such repairs; (ii) otherwise than as a tenant, the amount paid byhim on account of current repairs to thepremises;him on account of current repairs to thepremises; (b)any sums paid on account of land revenue, localrates or municipal taxes; (c)the amount of any premium paid in respect ofinsurance against risk of damage or destruction of the premises. 37(4). Notwithstanding anything contained iIn_ susection(1) or sub-Section (3),- ITR No. 157 of 1995 (1) no allowance shall be made in respect of anyexpenditure incurred by the assessee ajiter th09[th]day of February, 1970, on the maintenanceof any residential accommodation in the natureofaguest-nouse(suchresidentialaccommodation being hereafter in this sub-section referred to as “quest-house’)expenditure incurred by the assessee ajiter th09[th]day of February, 1970, on the maintenanceof any residential accommodation in the natureofaguest-nouse(suchresidentialaccommodation being hereafter in this sub-section referred to as “quest-house’) (i!) in relation to the assessment year commencingon the 7[si]day of April, 19771, or any subsequentassessment year, no allowance shall be made Inrespect of depreciation of any building used as aguest-house or depreciation of any assets inguest-nouse.on the 7[si]day of April, 19771, or any subsequentassessment year, no allowance shall be made Inrespect of depreciation of any building used as aguest-house or depreciation of any assets inguest-nouse. 222222222222222 (5)for the removal of doubts, it is hereby declared that any accommodation, by whatever name_ called,maintained, hired, reserved or otherwise arranged by theassessee for the purpose of providing lodging or boardingand lodging to any person (including any employee or,where the assessee IS a company, also any director of, orthe holder of any other office in, the company), on tour orvisit to the place at which such accommodation issituated, is accommodation in the nature of a guest-housewithin the meaning of sub-section(4). Section 30 of the Act allows deduction § ofexpenditure incurred on rent, rates, taxes, repair of premisesused for the purpose of business or profession. The use ofthe word ‘profession’ in Section 30 of the Act may appear tosuggest that guest Nouse expenses can be allowed as adeduction. However, a perusal of Section 37(4) of the Act,Which Commences with a non-obstantive clause reveals that ITR No. 157 of 1995 no allowance shall be made in respect of any expenditureIncurred by the assessee, after the 28[tn]day of February,1970, on the maintenance of any residential accommodationIn the nature of a guest nouse. Section 3/7(5) of the Actfurther clarifies that any accommodation by whatever namemaintained, hired, reserved or otherwise arranged by theassessee for the purpose of providing lodging or boarding toany person on tour or visiting of a place at which suchaccommodation Is situated, snall fall within the meaning ofguest house, used In sub-section 4 of Section 37 of the Act. ITR No. 157 of 1995 no allowance shall be made in respect of any expenditureIncurred by the assessee, after the 28[tn]day of February,1970, on the maintenance of any residential accommodationIn the nature of a guest nouse. Section 3/7(5) of the Actfurther clarifies that any accommodation by whatever namemaintained, hired, reserved or otherwise arranged by theassessee for the purpose of providing lodging or boarding toany person on tour or visiting of a place at which suchaccommodation Is situated, snall fall within the meaning ofguest house, used In sub-section 4 of Section 37 of the Act. Sections 37(4) and (5) of the Act are UnambiguousIn their intent and purpose that expenditure claimed by anassessee on account of guest nouse charges would not fallunder Section 30 of the Act and therefore, cannot be allowedas a deduction. The Tribunal nas, therefore, erred in deletingthe addition made by the Assessing Officer by relying uponSection 30 of the Act. The first question Is, accordingly,answered tn favour of the revenue by nolding that paymentof guest house charges cannot be allowed as a deduction. The second question briefly put Is whethersubscription paid directly in the form of cash cannot betreated as a perquisite in view of Section 40-A (5)(a) (Il) ofthe Act. Counsel for the revenue submits that assubscription paid to professional institutions and ciubs arepart and parcel of the salary paid to an employee it must ITR No. 157 of 1995 -6- partake the nature of perquisites and therefore, sucnpayments are to be treated as perquisites being notconvertible into money/casn. | Counsel for the assessee relies upon a Juagment ofDelhi High Court inCommissioner of [ncome Tax Vs. ShriranRefrigeration Industries Ltd., (1993) 110 CTR (Del) 60andaJudgment of the Madras High Court tn)Commissioner ofIncome Tax Vs. Madras Rubber Factory Ltd., (1996) 131 CTR(Mad) 227, to contend that cash payment made on benaif ofan employee is not a perquisite and therefore, cannot bedisallowed under Section 40-A (5) (il) of the Act. — A que consideration of the facts reveals thatsubscription has been made to professional institutions andclubs. The subscription, therefore, cannot be treated as aperquisite under Section 40(A) (5a) of the Act. Rellance maybe placed upon a judgment of the Delhi High Court InCommissioner of Income Tax Vs. Shriram RefrigerationINndustries Lt<supra)The second question Is answered,accordingly, against the revenue. The third question is whether the Income TaxAppellate Tribunal has erred by allowing extra sniftallowance on the basis of the concern as a whole working asan extra shift?| Counsel for the revenue submits that extra shiftallowance can only be allowed for the relevant numbers of ITR No. 157 of 1995 days, but the Tribunal has allowed the assessee's claim byrelying upon Instruction No.1605 dated 26.2.1985 Issued bythe Central Board of Direct Taxes. Tne Assessing Officer,|while taking a view contrary to the view in the circular reliedupon the judgment of this Court InSaraswati Industria]Syndicate Vs. C/T, 136 /TR 361 A due consideration of the arguments reveals thatthe ITAT nas relied upon a circular issued by Central Board ofDirect Taxes while holding in favour of the assessee. Aperusal of the judgment InSaraswati Industrial Syndicate6case (supra)' reveals that it does not pertain to extra shifallowance and Is, therefore, irrelevant. Tne question naseven otherwise already been answered in favour ofassessees by the Hon'ble Supreme Court In |South IndiaViscose Ltd. Vs. Commissioner of Income Tax, (1997) 141CTR (SC) 374' and aS a consequence, the question Isanswered against the revenue. A due consideration of the arguments reveals thatthe ITAT nas relied upon a circular issued by Central Board ofDirect Taxes while holding in favour of the assessee. Aperusal of the judgment InSaraswati Industrial Syndicate6case (supra)' reveals that it does not pertain to extra shifallowance and Is, therefore, irrelevant. Tne question naseven otherwise already been answered in favour ofassessees by the Hon'ble Supreme Court In |South IndiaViscose Ltd. Vs. Commissioner of Income Tax, (1997) 141CTR (SC) 374' and aS a consequence, the question Isanswered against the revenue. As regards the question No.5, the controversy Iscovered against the revenue by circular No.380, dated10.04.1984, issued by the Central Board of Direct Taxes anda juagment of the Bombay High Court in the case of.IndianOil Corporation Vs. S. Rajagopalan 1TO, (1973) 92 ITR 241(Bom). Counsel for the revenue Is unable to raise anymeaningful argument against the circular or the aforesaidJuagment. We consequently hold against the revenue and ITR No. 157 of 1995 answer the question accordingly. — The questions of law naving been answered, thereference Is disposed of accordingly. (.RAJIVE BHALLA )JUDGE 8.177014monika (B.S. WALIA)JUDGB