Britannia Industries Ltd. vs. CIT 278 ITR 546 (SC)

The dispute in the instant case was with regard to disallowance of a sum of Rs. 31,38,017/- for the assessment year 1994-95, 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.

Their Lordships of the Supreme Court observed as under :

"It is 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 head "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 day 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 a 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."

After considering the cases cited by the assessee’s counsel their Lordships held as under :

"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. ....."

The decisions of CIT vs. Biswanath Tea Co. Ltd. 2003, 264 ITR 166 (Cal.), CIT vs. Upper Ganges Sugar Mills Ltd. 1994, 206 ITR 215 (Cal.) and Kesoram Industries & Cotton Mills Ltd. vs. CIT 1991, 191 ITR 518 (Cal.) were approved by their Lordships whereas the decisions in the cases of CIT vs. Chase Bright Steel Ltd. (No. 1) [1989, 177 ITR 124 (Bom), Century Spinning & Manufacturing Co. Ltd. vs. CIT 1991, 189 ITR 660 (Bom), CIT vs. Ahmedabad Manufacturing & Calico Printing Co. Ltd. 1992, 197 ITR 538 (Guj.), CIT vs. Travancore Cements Ltd. 1999, 240 ITR 816 (Ker.), FB and CIT vs. South India Viscose Ltd. 2003, 259 ITR 107 (Mad) were not approved.

Guru Nanak Enterprises & Ors. vs. Income-tax Officer 279 ITR 30 (SC)

The assessee firm filed its belated income-tax return disclosing an income on which the tax liability was Rs. 644/-. The Assessing Officer made certain additions to its income and determined the tax liability at Rs. 10,476/-. The firm filed an appeal and the appellate authority determined the tax liability at
Rs. 4,450/-. On further appeal the Appellate Tribunal partly allowed the appeal and determined the tax liability of the firm at
Rs. 1,360/-. In the meantime the Assessing Officer lodged a complaint against the firm under section 276CC read with section 278B of the Income-tax Act, 1961. The firm filed a petition under section 482 of the Code of Criminal Procedure, 1973, to have the prosecution quashed.

The High Court dismissed the petition summarily. On appeal to the Supreme Court, reversing the order of the High Court their Lordships held that under clause (ii)(b) of proviso to section 276CC of the Act a person shall not be proceeded with for failure to furnish in due time the return of income if the tax payable on the total income determined as reduced by advance tax and tax deducted at source did not exceed Rs. 3,000/-. Since the tax liability of the firm, on final assessment was determined at Rs. 1,360/-, the prosecution was unwarranted and the proceedings had to be quashed.