The Commissioner Of Income Tax, ... vs M/S Triveni Sheet Glass Works ...
2013 Latest Caselaw 7457 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

					                                             A.F.R. 
 
					  Judgment reserved on 03.12.2013						  Judgment delivered on 13.12.2013 
 

 
        INCOME TAX APPEAL DEFECTIVE NO.160 OF 1999
 
		 The Commissioner of Income Tax, Allahabad
 
					   Vs.
 
		M/s Triveni Sheets Glass Works Ltd, Allahabad
 

 
Hon'ble Sunil Ambwani, J.

Hon'ble Surya Prakash Kesarwani, J.

1. We have heard Shri Shambhu Chopra, learned counsel for the Income Tax Department. Shri N.C. Gupta appears for the respondent-assessee.

2. This Income Tax Appeal under Section 260A of Income Tax Act, 1961 arises out of an order dated 4.12.1998 passed by Income Tax Appellate Tribunal, Allahabad Bench 'A', Allahabad in ITA No.323 (Alld) of 1991 for assessment year 1984-85. The appeal was admitted on the substantial question of law as follows:-

"Whether the Hon'ble I.T.A.T. was correct in the interpretation of provisions of sub-section (3B) of Section 37 of I.T. Act, 1961 in view of explanation (a) appended to sub-section (3B) of Section 37 of I.T. Act, 1961?"

3. Brief facts giving rise to the Income Tax Appeal are that the assessee filed a return for a loss of Rs.4,87,530/- for the assessment year 1984-85 relevant to previous year ending on 30.6.1983 on 25.6.1984. The assessment was framed under Section 143 (3) on the income computed at Rs.90,70,506/- after giving adjustment of Rs.3051/- in previous year; deduction under Section 35-D as claimed of Rs.45,319/-; deduction under Section 35-B (Export Market Development allowance) as per assessee's claim of Rs.2720/-; depreciation allowance (as per separate sheet attached) of Rs.87,95,174/- deduction under Section 80-G of Rs.5000/- and investment allowance of Rs.25,837/-. The unabsorbed investment allowance of 1983-84 was allowed to be carried forward to the extent of Rs.8,93,689/-. The assessment was made on the income found to be 'Nil'.

4. In appeal the assessee claimed that the assessing officer aggregated the expenditure incurred by the assessee on advertisement, publicity and sales promotion of Rs.3,91,170/-, vehicle upkeep expenses of Rs.2,33,062/- and payments made to hotels of Rs.71,376/- totalling Rs.6,95,608/- and deducted there from Rs. 1 lakh, and disallowed 20% thereof under Section 37 (3A)/(3B) of the Income Tax Act, 1961 (the Act) on the remaining amount, which was not in accordance with the law. The assessee-appellant submitted that the assessment officer should have allowed deduction of Rs. 1 lac in respect of each item namely (1) advertisement expenses; (2) vehicle upkeep expenses and (3) payments to the hotels.

5. The CIT (A) agreed with the submission of the appellant and without recording any reason directed the AO to re-compute the disallowance under Section 37 (3B) (i) and (ii), and to grant consequential relief to the appellant. The appellant did not prefer an appeal against the order of CIT (A) dated 31.7.1989.

6. The D.C.I.T. (Asst.), Special Range, Allahabad moved an application under Section 154 of the Act on 22.10.1990 pointing out that a mistake of law has crept into the appellate order dated 7.8.1989 for assessment year 1984-85 resulting in excessive relief to the assessee. According to the department in the assessment order the assessing officer disallowed Rs.1,19,122/- under Section 37 (3A)/(3B). In appeal it was submitted that the assessing officer should have allowed deduction of Rs.1 lakh in respect of each item viz. advertisement expenses, vehicle upkeep expenses and payments made to hotels. The CIT (A) agreed with the submissions of the assessee and directed re-computation.

7. The D.C.I.T. (Asst.) submitted that the CIT (A)'s directions were not based on the correct interpretation of the provision of Section 37 (3A)/(3B) inasmuch as the deduction of Rs. 1 lakh is admissible on the aggregate of the expenses in respect of the items of expenditure mentioned in sub-section (3A) read with the Explanation (a) for the purposes of sub-sections (3A) and (3B) of Section 37. The CIT (A) rejected the application on the ground that the provisions for deduction, exemption or relief should be construed liberally and that his predecessor in the case of M/s Mitra Prakashan (P) Ltd, Allahabad in the appellate order dated 15.9.1988 for assessment year 1985-86 had taken a similar view.

8. The Deputy Commissioner of Income Tax (Asst.) filed I.T.A. No.323 (Alld) of 1991 in which an objection was taken by the assessee that since the department had not preferred an appeal against the appellate order, the application for rectification under Section 154 (2) of the Act is not maintainable. Earlier the Tribunal had dismissed the appeal in which no such ground was taken. The Tribunal rejected the objections on the ground that the issues pressed by the assessee in its appeal before the Appellate Tribunal were totally different and thus theory of merger has no application; the Tribunal is competent in law to decide the appeal on merits. On appeal the Tribunal held as follows:-

"4.1 We now come to the merits of the decision of the ld. C.I.T. (A). The plea of the assessee before the ld. C.I.T. (A) was that in between each of the clauses (i), (ii) and (iii) of sub-sec. (3B) of Sec.37, the word used is 'or' and not 'and' which meant that the expenditure covered under each of the clauses was required to be considered independently considering the fact that sub-sec. (3A) refers to the expenditure or, as the case may be, "the aggregate expenditure incurred by an assessee on any one of more of the items specified in sub-sec. (3B)". It may prima facie be correct to say that the expenditure under the three clause of Sec.37 (3B) is to be aggregated but in view of the conjunction 'or', the issue can certainly give rise to a debate. It cannot, therefore, be said that grant of separate deduction of Rs.1,00,000/- in respect of the expenditure separately categorised under three different clauses was a glaring mistake of law. In the circumstances, at best what could be said is that the mistake in the order of the C.I.T. (A) was such which could be discovered only on interpretation of the relevant provisions of the Act. If that is so, it was not a mistake apparent from records because there could conceivably be two opinion on the issue involved. In the circumstances, we do not find any infirmity in the order of the ld. C.I.T. (A) in rejecting the application u/s 154 of the Act.

5. In the result, the appeal is dismissed."

9. Shri Shambhu Chopra, appearing for the revenue submits that a plain reading of the provisions of Section 37 (3A)/(3B) of the Act along with Explanation (a) of the amendments in sub-section (3A) to (3D) inserted by Finance Act, 1983 with effect from 1st April, 1984 and deleted by Finance Act, 1985 with effect from 1st April, 1986, provides that the deduction in the expenditure is to be allowed on the aggregate of the amount incurred on items in sub-section (3B). When the amount so aggregated exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction. The CIT (A) and the Tribunal committed gross error in law in misreading these provisions and in allowing deduction of hundred thousand rupees on each of the item in sub-section (3B).

10. In order to appreciate the submission of Shri Shambhu Chopra we may quote for our benefit the provisions of Section 37 (3A) to (3D) as follows:-

"II. The following sub-ss. (3A) to (3D) were inserted by the Finance Act 1983 with effect from 1st April 1984 and deleted by the Finance Act, 1985 with effect from 1st April, 1986:

"(3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'.

(3B) The expenditure referred to in sub-section (3A) is that incurred on-

(i) advertisement, publicity and sales promotion; or

(ii)running and maintenance of aircraft and motor cards; or

(iii) payments made to hotels.

Explanation- For the purposes of sub-sections (3A) and (3B),-

(a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act;

(b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities;

(C) expenditure on running and maintenance of aircraft and motor cars shall include, -

(i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire;

(ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also.

(3C) Nothing contained in sub-section (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of section 80B, or a person (other than a company) who is resident in India in respect of expenditure incurred wholly and exclusively on-

(i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business;

(ii) running and maintenance of motor cards in any branch, office or agency maintained outside India for the promotion of the sale outside India of such goods, services or facilities.

(3D) No disallowance under sub-section (3A) shall be made-

(i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft;

(ii) in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars."

11. A plain reading of Section 37, (3A) to (3C), as amended by Finance Act, 1983 with effect from 1st April, 1984, and deleted by the Finance Act, 1985 with effect from 1st April, 1986, would show that it provides to aggregate the expenditure incurred on the items in sub-section (3B), and thereafter to allow deduction in computing the income chargeable under the head 'profits and gains of business or profession', to the extent of twenty per cent of such excess over and above one hundred thousand rupees. The words 'aggregate expenditure' incurred by an assessee on any or more of the items specified in sub-section (3B), is to be read with the Explanation (a), which provides that the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee, as reduced by so much of such expenditure as is not allowed under any other provision of this Act. The Explantion (a) clarifies without admitting any doubt that the expenditure incurred on any or all the items under sub-section (3B) has to be aggregated before the deduction of twenty per cent of such excess beyond one hundred thousand rupees may be allowed in computing the income under the head 'Profits and gains of business or profession'. In Union of India vs. Hansoli Devi (2002) 7 SCC 273, the Supreme Court held that if the words of the Statute are in themselves precise and unambiguous, then no more can be necessary than to expound these words in their natural and ordinary sense. The words thesemselves alone do, in such case, best declare the intention of the law givers.

12. We agree with the contention of Shri Shambhu Chopra that there is no doubt nor could there be any debate with the plain and simple meaning of the exemption provided under Section 37 (3A) to (3D) read with Explanation (a) of the Act.

13. The CIT (A) and Tribunal have erred in interpreting the deduction under Section 37 (3A)/(3B) by reading the word 'or' after each of the clauses (i), (ii) and (iii) of sub-section (3B). The word 'or' has to be seen in the context of the deduction for expenses on any one or more of the items. Such expenses have to be aggregated for the purposes of allowing deduction. Further we do not agree with the reasons given by the CIT (A) that the provisions for exemption and deduction should be considered liberally. The question of liberal construction of the provisions is permissible when there is any ambiguity or doubt, or where two interpretations are possible for the same provision of law.

14. We also do not find any substance in the objections taken by Shri N.C. Gupta that the AO could not have filed an application under Section 154 to rectify the mistake. The CIT (A) did not give any reason whatsoever to accept the submission of the counsel of the assessee that the deduction has to be given on each of the items under sub-section (3B). He did not discuss and failed to appreciate the provisions of sub-section (3A) and explanation (a) of sub-section (3B) which provides in express term without any doubt of ambiguity that the expenditure specified in clause (i) and clause (ii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of the Act.

15. In view of the above we find that the CIT (A) and ITAT committed errors in law and reject the objections taken by Shri N.C. Gupta that since the question was debatable, the application under Section 154 was not maintainable. The judgments of Gujarat High Court and Calcutta High Court reported in 106 ITR 691 and 109 ITR 748, cited by him are not applicable to the facts of the present case. It was open to assessing officer to move an application for rectification under Section 154, as the CIT (A) had committed an error apparent on record and had accepted the argument of learned counsel appearing for the assessee without giving any reason.

16. The question of law is decided in favour of the department and against the assessee. The Income Tax Appeal is allowed. The department will proceed accordingly.

Dt.13.12.2013

RKP/