Commissioner Of ... vs Charat Ram And Sons.
1967 Latest Caselaw 169 Del

JUDGMENT

These two expenditure-tax references (Expenditure-tax References Nos. 13 and 14 of 1964) will be disposed of by one order because they raise identical questions relating to two sister concerns, and indeed practically one set of arguments has been addressed in this court.

Expenditure-tax Reference No. 13 of 1964 relates to Messrs. Charat Ram & Sons and the facts necessary for understanding the controversy would be clear from the following relevant portion of the agreed statement of the case forwarded to this court by the Income-tax Appellate Tribunal (Delhi Bench &quto;C&quto;).

&quto;2. The case refers to the assessment year 1958-59, for which the previous year was the calendar year ended 1957. The assessed, Messrs. Charat ram & Sons, New Delhi, is a Hindu undivided family In its return for assessment year 1958-59, the assessed-family claimed before the Expenditure-tax Officer that the expenditure of Rs. 11,150 incurred by it on the purchase and installation of a central air-conditioning plant in its newly built house at Sardar Patel Marg, New Delhi, was exempt under section 5(e) of the Expenditure-tax Act. This contention was rejected by the Expenditure-tax Officer in the view that the plant was nto part and parcel of the building but was covered by the expression toher household goods occurring in section 6(1)(d) of the said Act. In this view, he granted exemption for four-fifths of the expenditure of Rs. 11,150 and included only the remaining one-fifth in the taxable expenditure of the assessed-family.

3. The assessed carried the matter in appeal before the Appellate assistant Commissioner of Expenditure-tax and contested the validity of the aforesaid order of the Expenditure-tax Officer. But the appeal proved unsuccessful.

4. In the further appeal that followed, the Tribunal however, held that section 5(e) of the Act clearly covers the expenditure in question and accepted the assesseds contention on the point. It was found that the house in question was specially designed to contain in air-conditioning plant for purposes of centrally heating and cooling the whole house.

5. The assessed-family consisting of Shri Charat Ram, the karta, his wife and his four children, all of whom were minors, proceeded to Kashmir for a holiday and incurred in the relevant previous year a ttoal expenditure of Rs. 19,808. From the extract of the ledger account in the books of Messrs. Bharat ram Charat ram (P.) Ltd., it appears that the position was as follows :

Initially debited

Rs.

Rs.

30-5-57

Charat Ram & Sons.

5,000.00

17-7-57

L. Charat ram

270.00

21-6-57

Bharat Ram Charat Ram (P.) Ltd., Suspense account included in Rs. 40,011

14,523.75

22-7-57

L. Charat Ram & Sons

14.55

Ttoal

19,808.30

Debited to individual accounts with Bharat Ram Charat Ram P. L. :

Rs.

Rs.

31-7-57

Mr. Deepak Kumar

3,500.00

31-7-57

Mr. Sidharth Kumar

3,500.00

31-7-57

Miss. Shobha Charat Ram

3,500.00

31-7-57

Miss. Gauri Charat Ram

3,500.00

17-7-57

Mr. L. Charat Ram

270.00

17-11-58

Mr. L. Charat Ram

2,769.15

17-11-58

Mrs. Sumitra Charat Ram

2,769.15

Ttoal

19,808.30

Balance NIL

Balance NIL  

The assessed claimed that this expenditure was also exempt and could nto be treated as expenditure of the family as all the members of the family have separate properties of their own apart from the properties belonging to the family and that though the expenses were originally debited to the Hindu undivided families account, they were later on apportioned between the various individuals concerned, for it was mutually agreed between the parties that the expenses should be borne by each of them individually out of their own separate properties and nto by the family. On this ground, it was claimed before the Expenditure-tax Officer that this expenditure cannto be treated as having been incurred by the Hindu undivided family. This contention was rejected by the Expenditure-tax Officer who held that the expenditure was includible in computing the taxable expenditure of the Hindu undivided family. The matter was carried in appeal to the Appellate assistant Commissioner of Expenditure-tax who upheld the decision of the Expenditure-tax Officer. Further appeal to the Tribunal, however, proved successful, the Tribunal upholding the assesseds contention that the expenditure should be treated as having been borne by the individual members out of their separate funds and nto by the family.

6. In the assessment of the assessed-families taxable expenditure for the assessment year 1958-59, the assessed sought to exclude sums aggregating to Rs. 2,997, being the expense incurred for personal purposes of the members such as club expenses, traveling expenses, expenses on outfit, price paid for a watch, etc. The assessed-family contended before the Expenditure-tax Officer that the amount of Rs. 2,997 represented the personal expenses of the members of the assessed-family incurred by them but it had been wrongly debited to the Hindu undivided families account. The Expenditure-tax Officer, however, observed that there was ntohing to indicate that although those expenses were debited to the assessed-families account, the same were to be treated as personal expenses of the individual members of the family, particularly when regard is had to the fact that most of those expenses were such as could have been normally met by the assessed-family, e.g., watch for one of the daughters purchased by the karta, Charat Ram, tailoring bills of cltohes, etc. The Expenditure-tax Officer further observed that the fact that a consideration amount of expenses which were formerly debited to the Hindu undivided families account, was later on transferred to the personal account of the karta, Shri Charat Ram, by credit to the assessed-families account during the previous year clearly demonstrated that wherever necessary adjustments regarding such expenses had been made in the accounts. Accordingly, the Expenditure-tax Officer assessed the said amount of Rs. 2,997 as part of the assessed-families taxable expenditure for the assessment year 1958-59. Copy of the Expenditure-tax Officers order is annexed hereunto as annexure &quto;A&quto; and forms part of the case.

7. The matter was carried in appeal to the Appellate Assistant Commissioner of Expenditure-tax, who upheld the decision of the Expenditure-tax Officer. Copy of the order of the Appellate Assistant Commissioner is annexed hereunto as annexure &quto;B&quto; and forms part of the case.

8. In the further appeal that followed, the Tribunal held that it was nto for the department to dictate that the expenditure of Rs. 2,880 was to be met only by the assessed-family. Accepting the assesseds contention that the expenditure had been incurred by the members of the family in their individual capacity from their personal income, the Tribunal held that section 4(1) of the Expenditure-tax Act had no application, and in that view the tribunal held that the expenditure of Rs. 2,880 incurred for personal purposes of the members of the assessed-family should be excluded from the taxable expenditure of the assessed-family.

9. The Tribunals order accepting the assesseds contention on the above points is annexed hereunto as annexure C and forms part of the case.

10. At the request of the assessed, a summary of the Kashmir expenses account and a map of the building in question are annexed hereunto as annexures D and E and form part of the case.

11. From out of the aforesaid facts, the following questions of law arise :

(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 11,150 incurred by the assessed-family in connection with the installation of an air-conditioning plant in its newly built house was exempt under section 5(e) of the Expenditure-tax Act, 1957 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 19,808 incurred by the members of the assessed-family on a trip to Kashmir was nto covered under section 4(i) of the Expenditure-tax Act, 1957, and was, therefore, nto includible in the taxable expenditure of the assessed family ? and

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 2,880 incurred by the members of the assessed-family for their personal purposes such as club expenses, traveling expenses, expenses on outfit, price paid for a watch, etc., was nto covered under section 4(i) of the Expenditure-tax Act, 1957, and was, therefore, nto includible in the taxable expenditure of the assessed-family ?&quto;

In regard to the first question relating to the expenditure of Rs. 11,150, section 5(e) of the Expenditure-tax Act, 1957 (29 of 1957), hereinafter called the Act, as it existed in 1957, which is the relevant point of time, reads as under :

&quto;5. Exemption from expenditure-tax in certain cases. - No expenditure-tax shall be payable under this Act in respect of any such expenditure as is referred to in the following clauses, and such expenditure shall nto be included in the taxable expenditure of an assessed - ....

(e) any expenditure incurred by the assessed in connection with the acquisition of any immovable property or in the construction, repair, maintenance or improvement of any immovable property belonging to him.&quto;

The question requiring answer by this court is whether the installation of an air-conditioning plant in a newly built house is exempt under this clause. According to the learned counsel for the department, an air-conditioning plant would more appropriately fall within the purview of section 6(1) (d) of the Act which is in the following terms :

&quto;6. Deduction to be made in computing the taxable expenditure. - (1) The taxable expenditure of an assessed for any year shall be computed after making the following deductions and allowances, namely :- ...

(d) Four-fifths of any expenditure incurred by way of capital expenditure on the purchase of furniture and toher household goods, mtoorcars and toher conveyances or any toher articles for the personal use of the assessed or any of his dependents :

Provided that where a deduction as aforesaid is made, one-fifth of the said capital expenditure shall be deemed to be incurred by the assessed in each of the four years succeeding the previous year in which the expenditure was incurred and no deduction shall be made under this clause in the assessment for any succeeding year in respect of expenditure so deemed to have been incurred in any earlier year.&quto;

The submission pressed before us by Shri A. N. Kirpal, the learned counsel for the department, is that the air-conditioning plant can neither be held to be a part of the immovable property, nor can it be held to be an improvement of such property and, therefore, the expenditure incurred in connection therewith can on no reasonable hyptohesis be considered to fall within the purview of section 5(e) of the Act. Such a plant can more appropriately be quieted with an air-conditioner fixed in a room which, when looked at from a practical point of view, cannto be considered to be a part of the immovable property. Support for this submission has been sought from the argument that depreciation under the Income-tax Act is allowed on an air-conditioning plant as distinct from the building in which it is fixed.

Shri Karkhanis, the learned counsel for the assessed, has in reply submitted that an air-conditioning plant is an integral part of the immovable property and that, in any event, it is an improvement within the contemplation of section 5(e). There is no evidence on the record, says the counsel, suggesting that the plant can be detached from the immovable property and it is emphasised that the plant has been found to be of durable nature.

The question posed is by no means simple or easy to answer and indeed much can be said for buth the points of view canvassed at the Bar, but after devtoing our most anxious thought to the arguments addressed, we are inclined, as at present advised, to lean in favor of the plant, when fixed to the immovable property, to become a part of it and we are further inclined to think that there is a greater reason to hold that it constitutes an improvements of the immovable property concerned. Considering this view to be somewhat more persuasive, we uphold the decision of the Appellate Tribunal on this point and answer the first question referred in the affirmative.

The second question relates to the expenditure of Rs. 19,808, spent on a trip to Kashmir by the members of the assessed-family, and we have to see whether this expenditure falls within section 4(i) of the Act. Section 4(i) may here be reproduced :

&quto;4. Unless toherwise provided in section 5, the following amounts shall be included in computing the expenditure of an assessed liable to tax under this Act, namely :

(i) any expenditure incurred, whether directly or indirectly by any person toher than the assessed in respect of any obligation or personal requirement of the assessed or any of his dependents which, but for the expenditure having been incurred by that toher person, would have been incurred by the assessed to the extent to which the amount of all such expenditure in the aggregate exceeds Rs. 5,000, in any year.&quto;

Shri A. N. Kirpal, learned counsel for the revenue, has very strongly urged that this expense was incurred by the joint Hindu family and nto by the minors. As guardian of the minors, the father could nto burden the minors estate when the Hindu undivided family had already incurred the expenses. On the toher hand, on behalf on the assessed it has been argued that all the members of the family had separate properties of their own apart from the properties belonging to the family and though the expenses were originally debited to the account of the Hindu undivided family, they were later on apportioned between the various individuals concerned, it being mutually agreed between the parties that the expenses should be borne by each of them individually out of their own separate properties and nto by the Hindu undivided family. This expense, it is contended, cannto be considered to have been incurred by the Hindu undivided family, assessed, in the case in hand. After considering the rival contentions advanced, it must be borne in mind that an undivided Hindu family is nto a human being and the Hindu undivided family as a unit of assessment has from the very nature of things, to function through individual member or members of such family. Merely because initially the amount was debited to the account of the Hindu undivided family, would nto, in our opinion be conclusive of the fact as to who has spent this money for the purposes of the Act. If the amount has actually been within a reasonable time shown in the account books to have been spent by the various individuals concerned, then this expenditure may well be considered to have been allocated to the coffers of the individuals for whose benefit and on whose comfort it was actually spent. assesseds, in our view, must always be entitled to so adjust their affairs as to be able to reduce to the minimum their liability to be taxed within the statutory language permissible and it would be an unjust construction of tax laws to unduly stretch or strain them for the purpose of enhancing the burden on the taxpayer. Reference has been made on behalf of the revenue to the definition of the word &quto;dependent&quto; as contained in section 2(g) of the Act. &quto;Dependent&quto;, according to this definition means -

&quto;(i) ........

(ii) Where the assessed is a Hindu undivided family -

(a) every coparcener toher than the karta; and

(b) any toher member of the family who under any law or order or decree of a court, is entitled to maintenance from the joint family property;...&quto;

This definition, in our view, would nto be of much assistance in the present case because if the dependents have gto their own separate property and they choose to spend out of that property, it would nto stand to reason to allocate their expenditure to that of the Hindu undivided family where the parties agree that they should spend out of their separate funds. There is ntohing illegal or fraudulent about it, as it is perfectly lawful for an assessed to so arrange his income and expenditure as to take his case out of a taxing statute. We are accordingly inclined to agree with the Appellate Tribunal on the second question as well which is also answered in the affirmative.

This brings us to the third question which is concerned with the expenditure of Rs. 2,880, incurred by the members of the assessed-family for their personal purposes such as club expenses, traveling expenses, expenses on outfit, price paid for a watch, etc. This amount against requires construction of section 4(i) of the Act. No separate arguments were addressed on behalf of the revenue on this question and it appears to us that the answer to this question should also be in favor of the assessed. Before concluding, we may point out that on behalf of the assessed, our attention has been drawn to the following decisions :

Darsan Surendra Parekh v. Commissioner of Expenditure-tax, Commissioner of Expenditure v. Lal Chand Hirachand, and Additional Expenditure-tax Officer, Palghat v. Venugopal Ravi Varma Raja.

The assessed, in our opinion, is entitled to the costs of this hearing which we fix at Rs. 250; only one set of costs.

Reference answered accordingly.