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2000(1) Supreme 601
SUPREME COURT OF INDIA
(From Rajasthan High Court)
D.P. Wadhwa & S.S. Mohammed Quadri, JJ.
Rajasthan State Warehousing Corporation -Appellant
versus
Commissioner of Income Tax -Respondent
Civil Appeal No. 4049 of 1994
Decided on 23-2-2000
On the issue of apportionment of expenditure the following principles may be laid down :
(i) if income of an assessee is derived from various heads of income, he is entitled to claim deduction permissible under the respective head whether or not computation under each head results in taxable income;
(ii) if income of an assessee arises under any of the heads of income but from different items e.g. different house properties or different securities etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and
(iii) in computing profits and gains of business or profession when an assessee is carrying on business in various ventures and some among them yield taxable income and the other do not, the question of allowability of the expenditure under Section 37 of the Act will depend on : (a) fulfilment of requirements of that provision noted above; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do the entire expenditure will be a permissible deduction but if they do not the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee. (Para 11)
In the instant case a plain reading of the question itself shows that it embodies-"the business of the assessee being one and indivisible". This being the position, it is not open to the Revenue to contend that the business is not one and indivisible. In view of the fact that a perusal of the question itself discloses that income from various ventures is earned in the course of one and indivisible business, the impugned order upholding the apportionment of the expenditure and allowing deduction of only that proportion of it which is referable to taxable income, is unsustainable. (Para 12)
JUDGMENT
Syed Shah Mohammed Quadri, J.-This appeal arises from the judgment and order of the Division Bench of the High Court of Judicature for Rajasthan Bench at Jaipur in Income-tax Reference No. 86 of 1987 dated November 9, 1993. The assessee is the appellant.
2. By the order under challenge the High Court answered the following question, referred to it under Section 256(1) of the Income Tax Act, 1961 (for short the Act ), in the affirmative, that is, in favour of the Revenue and against the assessee :
"Whether on the facts and in the circumstances of the case and the business of the assessee being one and indivisible, the Tribunal was right in law in holding that the expenses have to allocated in the same percentage as the different sources of income and are not to be allowed in entirely as allowed by the Commissioner of Income-tax (A) after following decisions noted in para 11 of the order dated 31.1.1985 for the assessment years 1974-75, 1975-76 and 1980-81?"
3. In the assessment year 1977-78 the appellant, a State Government Corporation, derived its income from interest, letting out the warehouses and administrative charges for procurement of foodgrains while working for the Food Corporation of India as well as the State Government. It claimed deduction of expenditure of Rs. 38,13,555.17 under Section 37 of the Act in computing its income under the head profits and gains of business or profession . The Income Tax Officer allowed only so much of the expenditure as could be allocated to the taxable income and disallowed the rest of it which was referable to the non-taxable income, being exempt under Section 10(29) of the Act. On appeal, the Commissioner of Income Tax (Appeals)-II accepted the claim of the appellant that the entire expenditure was deductible. The Revenue s appeal therefrom to be Income-tax Appellate Tribunal was allowed upholding the order of the Income-tax Officer on July 17, 1986. At the instance of the appellant the question noted above was referred to the High Court. By order under challenge the High Court confirmed the order of the Income-tax Appellate Tribunal. Hence this appeal.
4. Mr. Joseph Vellapally, learned senior counsel appearing for the appellant, relied on the judgments of this Court in Commissioner of Income-tax, Madras v. Indian Bank Ltd.1, Commissioner of Income-tax, Bombay City-I v. Maharashtra Sugar Mills Ltd.2 and of Punjab and Haryana High Court in Punjab State Co-operative Supply and Marketing Federation Ltd. v. Commissioner of Income-tax, Patiala-I3 in support of his contention that the order of the High Court is unsustainable.
5. The contention of Mr. K.N. Shukla, learned senior counsel appearing for the Revenue, is that the expenditure which is attributable to the exempted income is not a permissible deduction and it has been rightly disallowed by the High Court.
6. To appreciate the contentions of the learned counsel it may be useful to refer to Section 37(1) of the Act :
"37. General.-(1) Any expenditure (not being expenditure of the nature described in Sections 30 to 36 * * * and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
A plain reading of the above provision makes it clear that it is a residuary provision and allows an expenditure, not covered under Sections 30 to 36, in computing the income chargeable under the head "profits and gains of business or profession", provided its other requirements are satisfied. They are : (i) the expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession; and (iii) it should have been expended in the previous year.
7. The disallowance of the expenditure
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