Important point
Having regard to the unambiguous bar incorporated under sub-section (4) of Section 37 of the Income Tax Act, the deductions indicated in Sections 30 to 36 could not be claimed relating to the guest house maintained by a company.

Headnote:Income Tax Act, 1961—Sections 28, 30 to 36—Profits and gains of business or profession—Deductions which are allowed on account of rent, rates, taxes, repairs and insurance in respect of premises and buildings used for purposes of business or profession—Assessment year 1994-95—A sum of Rs.31,38,017/- claimed by assessee as expenses towards rent, repairs, depreciation and maintenance of a guest house which was purportedly used in connection with business of the company—Disallowance of deduction—Whether justified—(Yes)—Having regard to the unambiguous bar incorporated under sub-section (4) of Section 37, benefits indicated in Section 30 to 36 although, independent of Section 37, could not be related to the guest house maintained by the assessee—Whether the expression ‘premises and buildings’ referred to in Sections 30 and 32 and used for the purposes of business or profession would include within its scope and ambit the expression ‘residential accommodation including any accommodation in the nature of guest house’ used in Section 37—(No).
       Held : The aforesaid provision of the Income Tax Act has undergone several changes from time to time and some of the portions, which are relevant for a decision in this case have since been omitted. However, it may be of interest to note that Sub-section (1) of Section 37 was brought on the statute book in 1964 and underwent several other changes thereafter. Sub-section (3) of Section 37 was inserted by the Finance Act 1964 with effect from 1st April, 1964 and was, thereafter, omitted by the Finance Act, 1997 with effect from 1st April, 1998. Similarly Sub-section (4) was inserted by the Finance Act 1970 with effect from 1st April, 1970 and was, thereafter, omitted by the Finance Act, 1997 with effect from 1st April, 1998. As will be apparent from a reading of Sub-section (1) of Section 37 of the Act, any expenditure not being expenditure of the nature described in Sections 30 to 36, inter alia, allowed and expended wholly and exclusively for the purposes of business or profession, is to be allowed in computing the income chargeable under the heading “profits and gains of business or profession”. In other words, Section 37 is to be read to the exclusion of the amounts allowable under Sections 30 to 36. Although, the expression “premises used for the purposes of the business or profession” has been used along with the expression “buildings and furniture” under Sections 30, 31 and 32 of the Act, for the first time the expression “residential accommodation including any accommodation in the nature of a guest house” has been used in Sub-section (3) of Section 37 of the Act. As will be seen, Sub-section (3) of Section 37 indicates that notwithstanding anything contained in Sub-section (1) any expenditure incurred by an assessee after 31st of March, 1964, inter alia, on maintenance of any residential accommodation in the nature of a guest house and hotel expenses, would be allowed only to the extent and subject to such conditions, if any, as may be prescribed. Sub-section (4), which was inserted in the statute book with effect from 1st April, 1970, is specific and provides that notwithstanding anything contained in Sub-section (1) and Sub-section (3) no allowance shall be made in respect of any expenditure incurred by the assessee after 28th February, 1970, on the maintenance of any residential accommodation in the nature of guest house and no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in the guest house. However, a guest house maintained as holiday home in the circumstances indicated have been excluded from the purview of Sub-section (4) referred to hereinabove. Inasmuch as, doubts still remained regarding the nature of accommodation used as a guest house by the companies. Sub-section (5) was included in Section 37 by the Finance Act in 1983 with effect from 1st April 1979 and was subsequently omitted by the Finance Act, 1997 with effect from 1st April, 1998. At the relevant point of time, namely, the assessment year 1994-1995, all the aforesaid provisions of Section 37 were available and, therefore, applicable to the case of the appellant-company. (Paras 6 to 11)
       The only question which we are called upon to consider in the instant case is whether the expression ‘premises and buildings’ referred to in Sections 30 and 32 and used for the purposes of the business or profession would include within its scope and ambit the expression ‘residential accommodation including any accommodation in the nature of guest house’ used in Sub-sections (3), (4) and (5) of Section 37 of the Act. While the two expressions can be similarly interpreted, a distinction has been sought to be introduced for the purposes of Section 37 by specifying the nature of building to be a guest house. In our view, the intention of the Legislature appears to be clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purposes of a guest house of the nature indicated in Sub-section (4) of Section 37. When the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give it a meaning which would cause violence to the provisions of the statute. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession, then it would not have felt the need to amend the provisions of Section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in Sub-section (5) of Section 37 and the provisions of Sections 31 and 32 would have been sufficient for the said purpose. (Para 29)

Judgment

Altamas Kabir, J.—The question which has been raised in this Civil Appeal appears to have been considered by different High Courts which have expressed divergent views in the matter. The said question has come up before this Court for consideration to resolve the anomalous situation.

2. The dispute in the instant case is with regard to disallowance of a sum of Rs. 31,38,017/- for the Assessment Year 1994-1995, which sum was claimed by the assessee as expenses towards rent, repairs, depreciation and maintenance of a guest house which was purportedly used in connection with the business of the company.

3. Chapter IV of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), deals with computation of total income and is divided into several parts. Part ‘D’, beginning with Section 28, deals with profits and gains of business or profession. Sections 30 to 36 relate to certain deductions which are allowed inter alia, on account of rent, rates, taxes, repairs and insurance in respect of premises and buildings used for the purposes of business or profession and includes

a) where the premises are occupied by the assessee-

(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;

(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

(b) any sums paid on account of rent, rates, local rates, municipal taxes;

(c) the amount of any premises paid in respect of insurance against risk of damage destruction of the premises paid in respect of insurance against risk of damage destruction of the premises.

In the explanation to Section 30, it has been indicated that the amounts paid on account of the items indicated above shall not include any expenditure in the nature of capital expenditure.

4. Sections 31 and 32 deal with the amounts which are allowable in respect of repairs and insurance of machinery, plant and furniture used for the purposes of the business or profession and in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets along with other intangible assets.

5. The facts involved in this case do not attract the provisions of Sections 30 to 36 of the Act, but have been referred to on account of reference made thereto under Section 37 of the Act which is important for our purpose. In order to appreciate the arguments advanced on behalf of the appellant, the provisions of Section 37 as they stood during the relevant assessment year are set out herein below:—

General.

“37(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”.

(2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:-

i) On the first Rs. 10,00,000/- of the profits and gains of the business (computed before making any allowance under Section 33 [or Section 33A] or in respect of entertainment expenditure)

ii) On the next Rs. 40,00,000/- of the profits and gains of the business (computed in the manner aforesaid)

iii) On the next Rs. 1,20,00,000/- of the profits and gains of the business computed in the manner aforesaid)

iv) On the balance of the profits and gains of the business (computed in the manner aforesaid)

At the rate of 1 per cent or Rs. 5,000/- whichever is higher,

At the rate of 3 1/2 per cent;

At the rate of 4 1/2 per cent;

Nil

(2A) Notwithstanding anything contained in sub-Section (1) or sub-Section (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertai

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2005 Supreme(SC) 1315

Important pointHaving regard to the unambiguous bar incorporated under sub-section (4) of Section 37 of the Income Tax Act, the deductions indicated in Sections 30 to 36 could not be claimed relating to the guest house maintained by a company.

Cases Referred (3)

Important point
Having regard to the unambiguous bar incorporated under sub-section (4) of Section 37 of the Income Tax Act, the deductions indicated in Sections 30 to 36 could not be claimed relating to the guest house maintained by a company.