Delhi High Court

Eicher Tractors Ltd. vs Dy. Cit on 4 October, 2002

Equivalent citations: (2002) 77 TTJ Del 681

ORDER

R.M. Mehta, V.P.

This Special Bench has been constituted to consider whether expenditure oil account of rent and repairs can be disallowed under section 37(4) which is the case of revenue or both the items are specifically allowable under sections 30 and 31, which is the case of the assessed. Admittedly there is a divergence of opinion not only between various Benches of the Tribunal, but also between the Hon'ble High Courts.

2. Before we go into the arguments of both the sides we find it necessary to set out the relevant provisions of the Income Tax Act, 1961, with which we are dealing.

Section 30 :

"In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose; of the business or profession, the following deductions shall he allowed :

(a) where the premises are occupied by the assessed

(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."

Section 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 of personal expenses of the assessed) laid out or expended wholly and exclusively for the purposes of the business or profession shall he allowed in computing the chargeable under the head "Profits and gains of business or profession."

Section 37(4) :

"Notwithstanding anything contained in sub-section (1) or sub-section (3) :

(i) no allowance shall be made in respect of any expenditure incurred by the assessed after 28-2-1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as 'guest-house');

(ii) in relation to the assessment year commencing on 1-4-1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any asset in a guest-house;

Explanation : For the purposes of this sub-section :

(i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessed in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and

(ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessed, include also the rent paid in respect of such accommodation."

3. Section 37(4) was inserted by Finance Act, 1970, with effect from 1-4-1970, and in the memo explaining the provisions the intention of the legislature is set out as follows :

"At present, expenditure incurred by an assessed on the maintenance of guest-houses is allowed as a deduction in computing the profits and gains of business or profession subject to certain limits specified in the Income Tax Rules. These rules cover expenditure on guest-houses maintained at the principal place of the business or profession in India, any place where the assessed has an establishment for processing of raw materials, manufacture or processing or production of any article or thing or any other industrial establishment employing not less than 50 whole-time employees throughout the relevant year, and, in the case of a business or profession having not less than 100 whole-time employees on its rolls, also 'holiday homes' for the use of the employees while on leave. The rules also cover guest-houses at Delhi and at two other places in India which may be either the capital of a State Government or any other place which is of direct importance to the business or profession. Banking companies are allowed to maintain guest-houses at Bombay to facilitate liaison with the Reserve Bank of India. Accommodation hired or reserved in a hotel for a period of more than six months during the year is treated as a guest-house for the purposes of the Rules.

These provisions have been found to be of little effect in curbing proliferation of guest-houses in order to place an effective check on lavish expenditure on maintenance of guest-house, it is proposed to disallow altogether expenditure incurred after 28-2-1970, on the maintenance of guest-houses other than 'holiday homes' in computing the profits and gains of business or profession. This provision will cover not only the establishment and other charges for running the guest-house, but also depreciation on the building where this is owned by the assessed, and rent paid for the accommodation where this is taken on hire or lease. Depreciation on assets, such as air-conditioners, refrigerators, cooking ranges, furniture and fittings, etc., in the guest-house will also be disallowed under the proposed provision.".............

(Emphasis, here italicised in print, supplied)

4. It is apparent that the intention is expressed in the widest possible terms and the avowed object is to check lavish expenditure and it is accepted as a fact that the existing provisions have been "of little effect in curbing proliferation of guest-houses"

Section 37(5) :

"(5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessed for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessed is a company, also any director of, or the holder of any other office in the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest-house within the meaning of sub-section (4)."

5. In the aforesaid background the submissions before us are :

Per assessed :

(i) Section 29 states that the income from profit and gains of business or profession shall be computed in accordance with the provisions contained in sections 30 to 43D;

(ii) Section 30 deals with the deductions on account of rent, rates, taxes, repairs, etc.;

(iii) Section 37 was a general provision whereas the earlier provisions were special provisions, i.e., sections 30 to 36;

(iv) Section 37 referred to expenditure detailed in sections 30 to 36;

(v) Section 37(4) overrides section 37(1) and 37(3) only and even the other sub-sections to section 37, i.e., (2), (3) and (3A) override section 37(1);

(vi) Section 40 with detailed certain amounts not deductible excluded sections 30 to 38 whereas sections 40A and 43B overrode every other provision of the Act;

(vii) Section 37(4) was to operate in a limited sphere and the "Explanation" could not enlarge the scope of the section;

(viii) Section 35DD(2) excluded an allowance under any other provision of the Act;

(ix) There were certain provisions such as section 37(3A) which dealt with a specific class of expenditure and even claim on account of depreciation was covered by a special provision, i.e., section 32;

(x) That both the depreciation section, i.e., 32 and the investment allowance section, i.e., 32A specifically prohibited allowances in respect of machinery or plant installed in any office premises or residential accommodation including accommodation in the nature of a guest-house. That a similar prohibition was contained in section 32AB;

(xi) The term "maintenance" did not include "repairs";

(xii) The answer to the question should be found from the language of the section itself and words should not be added thereto or subtracted there from; and

(xiii) In the light of the cleavage of opinion between the various Benches of the Tribunal as also Hon'ble High Courts, the view favoring the assessed should be adopted.

6. The plea, in other words, was that wherever the legislature desired any inclusion or exclusion it had indicated so, but the position in the sections under consideration was quite different. He, however, accepted that there was an apparent conflict in the relevant provisions.

7. In support of his arguments, the learned counsel placed reliance on a string of decisions both of the Hon'ble High Courts and various Benches of the Tribunal and his main submissions were that the judgments in favor of the assessed dealt with every aspect of the matter both on facts and in law whereas the decisions in favor of the revenue did not consider the entire spectrum of the provisions in question. The decisions on which lie relied upon are as under :

(i) Century Spinning & Manufacturing Co. Ltd. v. CIT (1991) 189 ITR 660 (Bom);

(ii) CIT v. Chase Bright Steel Ltd. (1989) 177 ITR 124 (Bom);

(iii) Enkay (I) Rubber Co. (P) Ltd v. IAC (1992) 40 ITD 114 (Del-Trib);

(iv) Pandyan Insurance Co. Ltd. v. CIT (1965) 55 ITR 716 (SC);

(v) CIT v. Midland Rubbers and Produce Co. Ltd. (1998) 232 ITR 530 (Ker);

(vi) CIT v. A.V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker);

(vii) CIT v. Price Water House (1994) 207 ITR 564 (Cal);

(viii) George Williamson (Assam) Ltd. v. CIT (1997) 223 ITR 203 (Gau);

(ix) CIT v. Travancore Cements Ltd. (1999) 240 ITR 816 (Ker)(FB);

(x) CIT v. Tungabhadra industries Ltd. (1994) 207 ITR 553 (Cal);

(xi) Kelvinator of India Ltd. v. IAC (1989) 29 ITD 469 (Del-Trib);

(xii) ITO v. Bush India Ltd. (1984) 9 ITD 882 (Bom);

(xiii) Hindustan Lever Ltd. v. IAC (1996) 58 ITD 555 (Bom-Trib);

(xiv) CIT v. Kaira District Co-operative Milk Producers' Union Ltd. (1991) 192 ITR 608 (Guj);

(xv) CIT v. Ahmedabad Mfg. and Calico Printing Co. Ltd. (1992) 197 ITR 538 (Guj);

(xvi) CIT v. O.E.N. India Ltd. (2000) 108 Taxman 288 (Mum-Trib)(Mag);

(xvii) State Bank of Bikaner & Jaipur v. Dy. CIT (2000) 74 ITD 203 (Jp-Trib);

(xviii) Kelvinator of India v. Dy. CIT (1996) 56 ITD 251 (Del-Trib);

(xix) Bhilai Engg. Corpn. Ltd. v. Dy. CIT (1991) 63 ITD 223 (Nag-Trib)(SB);

(xx) CIT v. Maharana Mills Ltd. (1994) 208 ITR 972 (Guj);

(xxi) Mahindra & Mahindra Ltd. v. Dy. CIT (1997) 61 ITD 129 (Mum-Trib)(TM);

(xxii) American Bureau of Shipping v. ITO (1986) 19 ITD 793 (Bom-Trib);

(xxiii) CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC);

(xxiv) CIT v. J.K. Hosiery Factory (1986) 159 ITR 85 (SC); and

(xxv) Asstt. CIT v. Bell Ceramics Ltd. (1999) 69 ITD 156 (Ahd-Trib).

8. The learned Departmental Representative, on the other hand, supported the orders passed by the tax authorities. The following main submissions were made :

(i) To the extent of a "guest-house" section 37(4) was a special provision and sections 30 to 36 were, therefore, to be excluded;

(ii) If two provisions were in conflict then the one latter in point of time should prevail;

(iii) The heading of a section was not relevant but its content was;

(iv) The manner in which it was being interpreted by the other side would make the section redundant and inoperative and this could not have been the legislative intent;

(v) section 37(5) was enacted to ensure that nothing went out of the ambit of section 37(4); and

(vi) The intention of the legislature was amply highlighted by the CBDT circular discussed in Asstt. CIT v. Trade Links Ltd. (1995) 54 ITD 108 (Del-Trib).

9. In support of the revenue's case, the learned Departmental Representative relied on :

(i) Kesoram Industries and Cotton Mills Ltd. v. CIT (1991) 191 ITR 518 (Cal);

(ii) CIT v. Upper Ganges Sugar Mills Ltd. (1994) 206 ITR 215 (Cal);

(iii) CIT v. Arvind Mills Ltd. (2001) 243 ITR 187 (Guj);

(xi) CIT v. Ocean Carriers (P) Ltd. (1995) 211 ITR 357 (Bom);

(v) United Catalysts (India) Ltd. v. CIT (1998) 229 ITR 233 (Ker);

(vi) Asstt. CIT v. Trade Links Ltd. (supra);

(vii) Kanoria Chemicals & Industries Ltd. v. CIT (1995) 78 Taxman 455 (Cal);

(viii) CIT v. Mathurantakam Co-operative Sugar Mills Ltd. (1998) 146 CTR (Mad) 730.

(ix) Purolator India Ltd. v. IAC (1990) 34 ITD 286 (Del-Trib); and

(x) ITO v. Mohan Meakin Breweries (1987) 20 ITD 179 (Del-Trib).

10. The learned counsel for the assessed in the reply referred at length to the decisions relied upon by the learned Departmental Representative and vis-a-vis some of these judgments his submissions were as under :

(i) The Hon'ble Gujarat High Court although expressing an opinion in favor of the revenue in CIT v. Gaekwar Mills Ltd. (1992) 193 ITR 734 (Guj), had expressed an opinion to the contrary, i.e., in favor of the assessed in (1991) 192 ITR 608 (Guj) (supra) and (1994) 208 ITR 972 (Guj) (supra), further, in (2001) 248 ITR 187 (Guj) (supra) the Gujarat High Court had decided against the assessed without taking into account the decisions of the same court, which were in favor of the assessed;

(ii) The decision of the Hon'ble Bombay High Court in (1995) 211 ITR 357 (Bom) (supra), which had gone in favor of the revenue was decided ex parte qua the assessed and even the question posed before Their Lordships was different; and

(iii) The decision of the Hon'ble Kerala High Court in (1993) 229 ITR 233 (Ker) (supra) which was against the assessed had subsequently been overruled by a Full Bench decision of the same court reported in (1999) 240 ITR 816 (Ker)(FB) (supra).

11. We may mention that during the course of the hearing the learned counsel for the assessed referred to the book of Justice G.P. Singh on "Interpretation of Statutes " and we may also mention that the learned Departmental Representative on the same topic had also advanced arguments at length relying on :

(i) Collector of Central Excise Bombay v. Parle Exports (P) Ltd. AIR 1989 SC 644.

(ii) Union of India & Ors. v. Wood Papers Ltd. & Anr. (1990) 4 SCC 256; and

(iii) Novopan India Ltd. v. Collector of Central Excise & Customs 1994 (73) ELT 769 (SC).

12. We have examined the rival submissions taking into account the numerous decisions relied upon by both the parties before us. As already stated, we while tracing out the background of the relevant provisions have referred to the intention behind the introduction of section 37(4) with effect from 1-4-1970, and this being the serious attempt on the part of the Government to curb lavish expenditure on maintenance of guest-houses. There was a specific and avowed intention to disallow expenditure incurred after 28-2-1970, on the maintenance of a guest-house and Explanation (i) and (ii) to section 37(4) and section 37(5) were worded in the widest possible terms to include within their sweep every type of expenditure incurred on the maintenance of a guest-house. Section 37(4)(ii) prohibited allowance of depreciation on a building used as a guest-house as also depreciation on assets in a guest-house and Explanation (ii) to section 37(4) stated that expenditure incurred on maintenance of a guest-house would include rent paid in respect of such accommodation.

Before we come to the legal propositions highlighted before us by both the parties, we find it appropriate to detail the views expressed by various Hon'ble High Courts as also different Benches of the Tribunal as follows :

13. Hon'ble Gujarat High Court :

The decision in (1994) 208 ITR 972 (Guj) (supra) has gone in favor of the assessed and the following observations at p. 974 are relevant :

"As can be seen from the questions, question Nos. 1 and 2 pertain to the same expenditure of Rs. 69,076 being the expenses incurred on current repairs of the assessed's guest-house at Porbandar. What is contended by learned counsel for the revenue is that Villa 7 maintained by the assessed at Porbandar was admittedly a guest-house and, therefore, section 37(4) was attracted in this case, and that it was not open to the assessed to claim deduction of that amount under section 30 of the Act. This contention raised on behalf of the revenue cannot be accepted in view of the two decisions of this court in CIT v. Kaira District Co-operative Milk Producers Union Ltd. (1991) 192 ITR 608 (Guj) and CIT v. Ahmedabad Mfg. and Calico Printing Co. Ltd. (1992) 197 ITR 538 (Guj). The view taken by this court is that the expenditure which is referred to in clause (i) of sub-section (4) of section 37 is one, which would be allowable as deduction under section 37(1). In order to attract the provisions of sub-section (4), it must first be established that it is an expenditure, which is covered by section 37(1). Section 37(1) refers to expenditure, (i) which is not an expenditure of the nature described in section 30; (ii) which is not an expenditure of capital nature; and (iii) which is not personal expenditure of the assessed. Since the expenditure in question was an expenditure in the nature described in section 30, it would not fall under section 37(1). The Tribunal was, therefore, right in taking the view that it was not disallowable under section 37(4) and that it was allowable under section 30 of the Act."

As against the aforesaid, the judgment in (2001) 248 ITR 187 (Guj) (supra) (on depreciation) has gone against the assessed and this is also the position in (1992) 193 ITR 734 (Guj) (supra) whereas (1992) 197 ITR 538 (Guj) (supra) is in favor of the assessed.

14. Hon'ble Kerala High Court :

The decision in (1993) 229 ITR 233 (Ker) (supra) has gone against the assessed and the observations at page 234 of the report are as under :

"Held, (i) that a reading of sub-section (4) and more clarified by sub-section (5) would clearly show that any accommodation by whatever name called, maintained, hired, reserved or arranged by the assessed for provision boarding or lodging to any person on tour or visit to the place at which such accommodation was situated, would be treated as accommodation in the nature of a guest-house and that no allowance should be made in respect of any expenditure incurred by the assessed after 28-2-1970, on the maintenance of any such guesthouse. It could not be contended that in spite of the above provisions specifically relating to guest-house, the assessed could still claim deduction under the general provisions of section 30. The very maintenance of a guest-house in the nature of the one described in sections 37(4) and 37(5) is hit by the provisions of section 37(4). Any expense incurred for repair of such guest-house would not be allowable. The wording of sub-section (4) of section 37 would make it clear that the expenditure referred to in sub-section (4) of section 37 was not for the 'maintenance work' of the guest-house, but on the very maintenance of a guest-house meaning for 'keeping' the guest-house. Expenses incurred for repair would come within expenses for keeping a guest-house. Therefore, the Tribunal was in error in holding that the amount spent on repairs would not come within the ambit of section 37(4).

15. It is the stand of the assessed's counsel that the aforesaid view has been overruled by a decision of the Full Bench in (1999) 240 ITR 816 (Ker)(FB) (supra). The following observations at page 821 of the report are referred to :

"Section 37 is a 'general' provision regarding the expenditure not covered by sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessed. Sub-section (1) of section 37 makes it so clear. Sub-sections (2) and (2A) impose certain restrictions in allowing deduction to the expenditure in the form of entertainment expenditure notwithstanding sub-section (1) of section 37. Sub-section (2B) says that notwithstanding anything contained in section 37(1), no allowance shall be made in respect of any expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like published by any political party. Sub-section (3) imposes a restriction that notwithstanding sub-section (1), the expenditure towards advertisement or on maintenance of residential accommodation including guest-house or in connection with the traveling of an employee, shall be allowed only to the prescribed limit. Sub-section (3A) makes certain restrictions in following the expenditure on the items mentioned in sub-section (3B) notwithstanding section 37(1). Sub-section (3B) deals with the following items of expenditure : (i) advertisement, publicity and sales promotion, (ii) running and maintenance of aircrafts and motor cars and (iii) payment made to hotels. Sub-sections (3C) and (3D) also deal with some of the items of expenditure covered by sub-section (3B). Sub-section (4) deals with further restrictions on the allowance of expenditure on maintenance of residential accommodation in the nature of guest-house. Sub-section (5) clarifies what is accommodation in the nature of guest-house. On going through the above provisions, it is clear that the expenditure covered by all the sub-sections of section 37 are items of expenditure not covered by sections 30 to 36. Hence, the items of expenditure covered by sections 30 to 36 are different from the items of expenditure covered by the different sub-sections of section 37. The above circumstances also would make it clear that the non obstante clause in section 37(3A) applies only to those of the items covered by section 37(1) and it cannot have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the Act."

16. Hon'ble Calcutta High Court :

There are three decisions of the Hon'ble Calcutta High Court namely, (1994) 206 ITR 215 (Cal) (supra), (1991) 191 ITR 518 (Cal) and (1995) 78 Taxman 455 (Cal) (supra) which have taken a view in favor of the revenue and against the assessed. The following observations at page 218 of 206 ITR are relevant :

"The language of the sub-section is quite emphatic that no allowance at all is intended in respect of any expenditure incurred after 28-2-1970, on the maintenance of any residential accommodation in the nature of a guest-house. No allowance of depreciation is also permissible for such guest-house or any assets in such guest-house. The prohibition against the allowance of maintenance expenditure of the guest-house is unmitigated. The only relaxation is in respect of holiday homes meant for whole-time employees for their exclusive use while on leave, there is no other relaxation. Where, however, the assessed collects any charge from the boarders, such charges have to reduce the amount of disallowance."

17. Hon'ble Bombay High Court :

(1991) 189 ITR 660 (Bom) (supra) and (1989) 177 ITR 124 (Bom) (supra) are in favor of the assessed whereas (1995) 211 ITR 356 (Bom) (supra) is in favor of the revenue. It was contended by the learned counsel that Their Lordships were only deciding whether the accommodation in question was a " guest-house", but the following observations at pages 361 and 362 of the report nullify this argument.

"Taking the totality of the circumstances into consideration, in our view, by providing accommodation to the members of the crew as also to representatives of the assessed's principal non-resident shipping companies in these flats, the assessed-company had treated these flats as its own guest-houses and since these guest-houses were not maintained exclusively as a holiday home for the employees of the assessed-company, the assessed-company was not entitled to allowance under section 37(4) in respect of any expenditure on maintenance thereof incurred after 28-2-1970, nor to any depreciation allowance."

18. Hon'ble Madras High court :

In (1998) 146 CTR (Mad) 730 (supra), Their Lordships have decided against the assessed, observing as under

"The object behind the introduction of the provisions of section 37(4) is to curb the lavish expenditure incurred by the assessed on the maintenance of the guest-house. In the absence of any such provision like that of section 37(4) the expenditure incurred on the guest-house was allowable as a normal business expenditure. Yet the legislature has stepped in and declared that the expenditure incurred on the maintenance of guest-house is not allowable as a business expenditure. The mandate of the provisions of section 37(4) is very clear. It desires to curb the expenditure incurred on the guest-house. Viewed in the light of the object behind the introduction of the provisions of sub-section (4) of section 37 the expression 'on the maintenance of any residential accommodation in the nature of a guest-house' should be given a wider meaning and it cannot be construed in a narrow or restricted manner. If such a wider meaning is given, the said expression would encompass not only the expenditure incurred on the maintenance of guest-house like whitewashing of the walls, employment of watchman, repairs, etc., but it would include other expenditure also which are essential for the proper functioning of the guest-house and the said expression should include the expenditure incurred on the purchase of the provisions of other essential items for giving refreshment or meals to the guests staying in the guest-house. If a narrow interpretation is given to the expression, 'on the maintenance of any residential accommodation in the nature of guest-house' it will really defeat the object behind the provisions of section 37(4). Therefore, the conclusion of the Tribunal that the expenditure incurred on the guests staying in the guest-house cannot be regarded as an expenditure on the maintenance of any residential accommodation in the nature of the guest-house is not sustainable. As already observed, it will include not only the maintenance expenditure of the guest-house, but extend to the expenditure incurred towards the provisions for food, drinks and refreshment and other amenities provided to the guests staying in the guest-house."

Decisions of the Tribunal :

19. There are decisions of various Benches both ways as is apparent from those cited before us by the parties, but those in favor have proceeded primarily on the proposition that section 37(4) overrides only sections 37(1) and 37(3) leaving untouched the expenditure detailed in sections 30 to 36. In none of the aforesaid decisions the legislative intent has been highlighted and as already stated earlier, the intention was to curb the lavish expenditure on the maintenance of guest-houses.

20. A perusal of the judgments of the Hon'ble High Courts also reveals that the opinion is divided and whereas some of them have interpreted the provisions without reference to the legislative intent, certain Hon'ble High Courts have highlighted the legislative intent as well.

21. We would also like to emphasise that sections 30 and 31 deal with rent and repairs, etc., of buildings, plant and machinery and furniture, etc., whereas section 32 deals with depreciation of various types of assets including buildings, etc. These sections stipulate that the use of the asset is for the purposes of business and profession. As against this section 37(1) refers to expenditure not being expenditure of the nature described in sections 30 to 36 and not being the personal expenditure of the assessed, but expenditure laid out or expanded wholly and exclusively for purposes of business or profession. Going still further, section 37(4) deals with expenditure pertaining to the maintenance of a guest-house as also depreciation on such guest-house and going further depreciation on any asset in a guest-house. Section 37(5) defines what is a guest-house ? The learned Departmental Representative has very strongly argued before us that in case section 37(4) is to be interpreted in the manner in which it has been contended by the learned counsel on behalf of the assessed, then it would be rendered otiose and ineffective since it would lead to a situation that in spite of a specific provision by which expenditure on the maintenance of a guest-house as also depreciation thereon which includes depreciation on the assets in the guest-house is barred, but these are still to be allowed as deductions in the light of provisions contained in sections 30, 31 and 32. It would be very apt at this stage to refer to certain observations/extracts from the "Principles of Statutory Interpretation" by Justice G.P. Singh, Eighth Edn. 2001, as follows :

"As stated earlier and as approved by the Supreme Court, 'the words of a statute, when there is doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the legislature has in view. Their meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained'. The courts have declined 'to he bound by the letter, when it frustrates the patent purposes of the statute'. In the words of Shah, J. : 'It is a recognized rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the legislature'.

Therefore, when two interpretations are feasible the court will prefer that which advances the remedy and suppresses the mischief as the legislature envisioned."

Rule in Heydon's case; purposive construction, mischief rule :

"When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words 'of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)' is the rule laid down in Heydon's case which has "now attained the status of a classic. The rule which is also known as 'purposive construction' or 'mischief rule', enables consideration of four matters in construing an Act : (i) what was the law before the making of the Act, (ii) what was the mischief or defect for which the law did not provide; (iii) what is the remedy that the Act has provided; and (iv) what is the reason of the remedy. The rule then directs that the courts must adopt that construction which 'shall suppress the mischief and advance the remedy'."

Inconsistency and repugnancy to be avoided, harmonious construction :

"It has already been seen that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency of repugnancy either within a section or between a section and other parts of the statute. It is the duty of the courts to avoid 'a head on clash' between two sections of the same Act and, "whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise.' it should not be lightly assumed that 'Parliament had given with one hand what it took away with the other'. The provisions of one section of a statute cannot be used to defeat those of another 'unless it is impossible to effect reconciliation between them'. The same rule applies in regard to sub-sections of a section. In the words of Gajendragadkar, J. : 'The sub-sections must be read as parts of an integral whole and as being interdependent' an attempt should be made in construing them to reconcile them if it is reasonably possible to do so, and to avoid repugnancy'. As stated by Venkatarama Aiyar, J. : 'The rule of construction is well settled that when there are in an enactment two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is what is known as the rule of harmonious construction. That effect should be given to both, is the very essence of the rule. Thus a construction that reduces one of the provisions to a 'useless lumber' or 'dead letter' is not harmonious construction. To harmonise is not to destory. A familiar approach in all such cases is to find out which of the two apparently conflicting provisions is more general and which is more specific and to construe the more general one is to exclude the more specific. The question as to the relative nature of the provisions general or special has to be determined with reference to the area and extent of their application either generally or specially in particular situations. The principle is expressed in the maxims Generalia specialibus non derogant, and Generalibus specialia derogant. If a special provision is made on a certain matter, that matter is excluded from the general provision."

22. By applying the aforesaid rules of interpretation it becomes quite apparent that section 37(4) is a specific provision whereas sections 30, 31 and 32 are general provisions and former overrides the latter. In the decisions of the Hon'ble High Courts as also some of the 'Tribunal, more so, two of the Delhi Benches (supra) relied upon by the learned Departmental Representative not only has the legislative intent been highlighted, but the question of interpretation has also been dealt with and discussed at length. As already discussed earlier not only is the opinion amongst the Hon'ble High Courts divided, but even in the same Hon'ble High Court, different views have been expressed at different points of time.

23. The Delhi Bench of the Tribunal in the case of ITO v. Mohan Meakin Breweries (supra) observed as under :

"Sub-section (4) which was enacted several years after sub-section (3), specifically deals with expenditure on the maintenance of the guest-house as well as with the notional allowance for depreciation of any building used as a guest-house or of any assets used in the guest-house. Sub-section (1) of section 37 specifically excluded from its operation expenditure 'not being expenditure of the nature described in sections 30 to 36. Sub-section (4) begins by saying 'notwithstanding anything contained in sub-section (1) or sub-section (3)'. Therefore, when sub-section (4) excludes sub-sections (1) and (3) of section 37, it extinguishes the exclusionary words 'not being expenditure of nature described in sections 30 to 36' used in section 37, The effect of the non obstante clause, in sub-section (4), therefore, is that it overrides all other provisions in the Act wherever they may be found. Even otherwise it is settled rule of interpretation of statutes that the specific overrides the general. Sub-sections (3) and (4) of section 37, specifically deal with certain types of expenditure and, therefore, they will override the general provisions contained inter alia in sections 30 and 32. Therefore, the learned Commissioner (Appeals) in the present case, was wrong in allowing deductions on account of repairs and depreciation connected with the guest-house.

24. Once again the Delhi Bench of the Tribunal in the case of Asstt. CIT v. Trade Links Ltd. (supra) discussed the matter in greater detail pointing out not only the non-existence of a consensus amongst the various Hon'ble High Courts, but also on rules of interpretation held that the provisions contained in section 37(4) and (5) were specific pertaining to a guest-house alone whereas provisions contained in sections 30 and 32 were general. We find it appropriate to reproduce relevant observations in the decision at pages 108 and 109 as follows :

"As regards the legal position of the issue involved in the instant case, there is no consensus amongst the High Courts regarding the allowability of expenditure on a guest-house. However, the intention of the legislature could be gathered from the history of the provisions of sub-sections (3), (4) and (1) of section 37. Till 28-2-1970, the expenditure incurred on the maintenance of a-guest-house was allowed as a deduction in computing the profits and gains of business or profession. This was, however, subject to certain limits and conditions prescribed in rule 6C of the Income Tax Rules, 1962. Rule 6C was, however, omitted by the Income Tax (Amendment) Rules, 1973, with effect from 1-4-1972. Subsequently, in order to place a check on lavish expenditure on maintenance of a guest-house, section 37(4) was inserted by the Finance Act, 1970, This sub-section provided for disallowance of expenditure incurred after 28-2-1970, on the maintenance of a guest-house other than holiday homes in computing the profits and gains of business or profession. Subsequently, section 37(5) was inserted by the Finance Act, 1983, with retrospective effect from 1-4-1979. The aforesaid section contained a definition of a guest-house.

A reading of the relevant statutory provisions shows that there is an apparent conflict between the provisions as contained in sections 30, 31 and 32 vis-a-vis sections 37(3), (4) and (5) of the Act. There are two provisions, one whereby the expenditure relating to rent and depreciation is allowable and the other where it has been specifically disallowed as is the case in sub-section (4) and sub-section (5) of section 37. Sub-section (4)(ii) of section 37 clearly makes a reference to disallowance in respect of depreciation of any building used as a guest-house or depreciation of any asset in a guest-house. The Explanation to the aforesaid sub-section makes a specific reference to rent paid in respect of accommodation which is to be disallowed. Reading these provisions conjointly with those of section 30 and section 32 would show that the former is more specific than the one relating to the latter. Section 30 refers to rent paid by any tenant in respect of the premises used for the purposes of business or profession. Similar is the case in respect of section 32 which makes a reference to depreciation in respect of any building, machinery, plant or furniture owned by the assessed. These sections are wide enough to cover any types of premises whereas it is not so in the case of sections 37(4) and (5) which is very specific and pertains to a guest-house alone. On a comparison of the two provisions, viz., section 37(4) read with section 37(5) with sections 30 and 32, it would be clear that the former is more specific and the latter more general. In clear and unambiguous terms the legislature has used the words 'rent and depreciation'. Though the latter is not covered in the expression 'expenditure' as held by their Lordships of the Supreme Court in the case of Pandyan Insurance Co. Ltd. v. CIT (1965) 55 ITR 716 (SC) yet these expressions find a place in sub-section (4) of section 37 which goes to show that allowance relating to depreciation has been covered in the sub-section intentionally. Thus, if viewed in the light of intention of the legislature, the deduction in respect of rent and depreciation was not allowable as per the provisions of sections 37(4) and (5).

In the circumstances, the expenditure relating to rent and allowance relating to depreciation pertaining to the guest-house was not allowable and, therefore, the order of the Commissioner (Appeals) on this issue as reversed and that of the assessing officer was restored."

25. We may invite some comment on the adherence to the legal proposition that the view favorable to the assessed should be adopted, but in our opinion, this would not be applicable to the present case considering the divergence of opinion amongst various Hon'ble High Courts as also in the same Hon'ble High Court at various points of time and the various Benches of the Tribunal. Under these circumstances, we propose to adopt/follow the view that in our opinion appears to take into account the legislative intent and which is moulded on the well known rules of interpretation highlighted earlier.

26. Before we part with this Special Bench reference we must specifically observe that we, in the present decision, have not attempted to reconcile the judgments of the Hon'ble High Courts, which as a quasi judicial Tribunal, we are not permitted to do under the law. We have merely given a factual narration of the views expressed in the various judgments cited before us by the parties and which was necessary to come to a conclusion on the issue before us. No judgment of the Hon'ble Supreme Court or the jurisdictional High Court was brought to our notice and which would have made our task much easier.

27. In the final analysis, we uphold the action of the tax authorities in rejecting the claims on account of rent and repairs.

28. In the result the appeal of the assessed is dismissed.