DY. CIT (ASST.) V. G.S.F.C. LTD.

TAXAP/384/2000

AI Insights

The case involves two tax appeals filed by the Commissioner of Income Tax against Gujarat State Fertilizer Co. Ltd., concerning the deductions claimed by the company on various expenditures. The appeals were heard together due to the similarity in the legal questions and facts involved. The main issues revolved around the deduction of obsolescence charges for non-moving imported spare parts, the deductibility of guest house expenses, and the eligibility of telephone equipment for investment allowance under Section 32A of the Income Tax Act. The Tribunal's decisions on these matters were challenged by both the assessee and the Revenue, leading to the present appeals.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 741343 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 28-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax v. Alfa Laval (India) Ltd., Britannia Industries Ltd. v. Commissioner of Income-Tax, Commissioner of Income-Tax V. Gujarat Narmada Vally Fertilizer Co. Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: J P SHAH
• Assessee Lawyers: K M PARIKH
• Keywords: Entertainment Expenses; Gratuity Provision; Guest House Expenses; Income Tax; Investment allowance; Obsolescence Charges
• Section: 260A; 32A; 37(4)

Judgement Text

"O/TAXAP/369/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 369 of 2002 With TAX APPEAL NO. 384 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-I.....Appellant(s) Versus GUJARAT STATE FERTILIZER CO. LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR JP SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 28 O/TAXAP/369/2002 JUDGMENT Date : 28/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. The Tax Appeal No.369 of 2002 u/s.260A of the Income­tax Act, 1961 is filed against the judgment and order of the Income Tax Appellate Tribunal passed in ITA Nos.487 to 489/Ahd/1994. 2. The Tax Appeal No.384 of 2000 u/s.260A of the Income­tax Act, 1961 is filed against the judgment and order of the Income Tax Appellate Tribunal passed in ITA No.623/Ahd/1991. 3. The facts of both the appeals are identical and therefore, both these appeals are taken up for hearing and decided together as they raised common question of law. 4. As the question of law as well as the facts of both these appeals are same, we discuss only facts of Tax Appeal No.384 of 2000. The assessee company is manufacturing chemical fertilizers, chemicals including urea, ammonium sulphate, dye­ Page 2 of 28 O/TAXAP/369/2002 JUDGMENT ammonium phosphate, caprolactum. During the year Coast DAP Project at Sikka has started production of DAP, which is a chemical fertilizer, various details have been furnished at the time of return and subsequently in course of assessment proceedings. On going through the details filed the points of Rental Income, Guest House Expenses, Entertainment Expenses, Disallowance under Section 40A(5), provision for Gratuity, etc. points were discussed. The assessee company has filed its return of income on 29.06.1987, declaring income of Rs.10,28,33,600/­, whereas the Assessing Officer has assessed total income of Rs.14,31,43,634/­. The assessee has filed appeal before CIT(A) who vide order dated 09.11.1990, partly allowed the appeal. 5. Feeling aggrieved by the said order, the assessee as well as Revenue both had filed ITA No.623/Ahd/1991 and ITA No.727/Ahd/1991 respectively before the Income Tax Appellate Tribunal, Ahmedabad. Both these appeals were Page 3 of 28 O/TAXAP/369/2002 JUDGMENT partly allowed by the ITAT vide its order dated 04.05.2000. Hence, being aggrieved by the said order, the Revenue has filed present appeal. 6. We have heard learned counsel from all the sides. Tax Appeal No.384 of 2000 was admitted vide order dated 13.11.2000. While admitting the said Appeal, following substantial questions of law arose for the determination of this Hon'ble Court; “(A) Whether, the Tribunal was justified in allowing deduction of Rs.1,38,48,000/­ on account of obsolescence charges in respect of certain non­moving imported spare parts, though the said spare parts were not completely proved to be a scrap and despite the fact that the claim did not fall under Sec.32, 37, and 28 of the Act? (B) Whether the Tribunal was justified in allowing deduction of Rs.9,266/­ in respect of guest house despite the clear provision of section 37(4) of the Act?” (C) Whether the telephone equipment installed in the factory, mobile equipments etc. were eligible for investment allowance u/s. 32A of the Act?” 7. The counsel for the respondent has contended that the issues raised in these appeals are now concluded by the decision of this Court as well Page 4 of 28 O/TAXAP/369/2002 JUDGMENT as the decision of Hon'ble Supreme Court. So far as question No.1 is concerned, the Hon'ble Supreme Court in case of Commissioner of Income­ tax v. Alfa Laval (India) Ltd., reported in 295 ITR 451, has held that (i) there was no undervaluation of stock, where the assessee had valued its obsolete stock at 10 per cent and had sold it in the next year at less than that value and (ii) the amount written back in the profit and loss account by way of adjustment on a recomputation of the depreciation on the basis of a circular of the Company Law Board could not be reduced from the profit eligible under section 32AB, and (iii) interest from customers and sales tax set off received by the assessee, being profits of the business under the head “Profits and gains of business or profession” could not be excluded while calculating the deduction under section 80HHC. An appeal was preferred to the Supreme Court by the Department against the said decision. The said appeal was dismissed by the Supreme Court leaving the question of law open. Page 5 of 28 O/TAXAP/369/2002 JUDGMENT 8. So far as question No.2 is concerned, Hon'ble Supreme Court has dealt with similar question in the case of Britannia Industries Ltd. v. Commissioner of Income­Tax and another, the relevant paragraphs read as under: “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 :­ \"37. General. (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 sub­section (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 At the rate of 1 per cent or Rs.5,000/­ whichever is higher; Page 6 of 28 O/TAXAP/369/2002 JUDGMENT 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) At the rate of 3 = per cent; iii) On the next Rs.1,20,00,000/­ of the profits and gains of the business (computed in the manner aforesaid) At the rate of 4 = per cent; iv) On the balance of the profits and gains of the business (computed in the manner aforesaid) Nil (2A) Notwithstanding anything contained in sub­Section(1) or sub­Section (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder:­ i) On the first Rs.10,00,000/­ of the profits and gains of the business or profession (computed before making any allowance under [Section 32A or] Section 33 or Section 33A or in respect of entertainment expenditure) At the rate of = per cent or → Rs.5,000/­ whichever is higher; ii) On the next Rs.40,00,000/­ of the profits and gains of the business or profession (computed in the manner aforesaid) At the rate of < per cent; → iii) On the balance of profits and gains of the business or profession (computed in the manner aforesaid) At the rate of 1/8 per → cent. Page 7 of 28 O/TAXAP/369/2002 JUDGMENT So, however, that the allowance shall in no case exceed Rs.50,000/­. Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed­ a) In the case of a company­ i) in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computer at the rate or rates specified in sub­Section (2), the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year; ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub­section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year; (b) in any other case­ i) in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub­section (1); ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub­section, the same proportion as the number of days comprised in the period Page 8 of 28 O/TAXAP/369/2002 JUDGMENT commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. [Explanation 1] : For the purposes of this `entertainment expenditure' includes­ i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th of February, 1968; ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in Clause (i) incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person). Explanation 2 : For the removal of doubts, it is hereby declared that for the purposes of this sub­section and sub­section (2B), as it stood before the 1st day of April 1977, `entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work. (2B) Notwithstanding anything contained in sub­section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. (3) Notwithstanding anything contained in sub­section (1), any expenditure incurred by Page 9 of 28 O/TAXAP/369/2002 JUDGMENT an assessee after the 31st of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest house or in connection with traveling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed. (3A) Notwithstanding anything contained in sub­section (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 sub­section (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 cars; or iii) payments made to hotel. Explanation: for the purposes of sub­sections (3A) and (3B): a) the expenditure specified in clause (i) to clause (iii) of sub­section (3B) shall be aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provisions 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; Page 10 of 28 O/TAXAP/369/2002 JUDGMENT 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 sub­section (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 cars 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 sub­section (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. (4) Notwithstanding anything contained in Page 11 of 28 O/TAXAP/369/2002 JUDGMENT sub­section (i) or sub­section (3): i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest house (such residential accommodation being hereafter in this sub­section referred to as \"guest house\"); ii) in relation to the assessment year commencing on the 1st day of April, 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 assets in a guest house: Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub­ section, be reduced by the amount, if any, received from persons using guest house: Provided further that nothing in this sub­ section shall apply in relation to any guest­ house maintained as a holiday home if such guest­house­ (a) is maintained by an assessee who was throughout the previous year employed not less than one hundred whole­time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation ­ For the purposes of this sub­ section: (i) residential accommodation in the nature of a guest­house shall include accommodation hired or reserved by the assessee in a hotel Page 12 of 28 O/TAXAP/369/2002 JUDGMENT for the period exceeding one hundred and eighty­two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest­house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation. (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 assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee 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 guest­house within the meaning of sub­section (4).\" 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 Sub­section (1) of Section 37 was brought on the statute book in 1964 and underwent several other changes thereafter. Sub­section (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 Sub­section (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 Page 13 of 28 O/TAXAP/369/2002 JUDGMENT 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 Sub­section (3) of Section 37 of the Act. As will be seen, Sub­section (3) of Section 37 indicates that notwithstanding anything contained in Sub­section (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. Sub­section (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 Sub­section (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 Sub­section (4) referred to hereinabove. Inasmuch as, doubts still remained regarding the nature of Page 14 of 28 O/TAXAP/369/2002 JUDGMENT accommodation used as a guest house by the companies, Sub­section (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 1994­1995, all the aforesaid provisions of Section 37 were available and, therefore, applicable to the case of the appellant­company. Dr. Debi Prasad Pal, learned senior counsel, appearing on behalf of the company, urged that Sections 30 to 32 deal with specific types of expenditure which are allowable in terms of the said provisions, whereas Section 37 deals with all other expenditure, not being expenditure described in Sections 30 to 36 of the Act, subject to the conditions: (a) the expenditure must not be of a capital expenditure; (b) expenditure must not be of a personal nature; and (c) the expenditure must be incurred wholly and exclusively for the purposes of business. Dr. Pal also urged that Section 37 contains general provisions allowing deductions in respect of expenditure not included within Sections 30 to 36 of the Act. Dr Pal also urged that since expenditure incurred by the assessee towards payment of rent, rates, taxes, repairs and insurance of premises, buildings and furniture used for the purposes of the business or profession has been provided for specifically under Sections 30, 31 and 32 of the Act, by virtue of the non­ obstante clause used in Sub­section (1) of Section 37 such expenses could not again be referable to Section 37 and the different provisions thereof. In other words, Dr. Pal urged that since the aforesaid expenses had been specifically allowed to be deducted the said benefit could not be taken away by the including of the expression \"residential Page 15 of 28 O/TAXAP/369/2002 JUDGMENT accommodation including any accommodation in the nature of a guest house\" in Sub­section (3) of Section 37 of the said Act. Dr. Pal then urged that having allowed a partial benefit, it could not have been the intention of the Legislature to take away the entire benefit by incorporating Sub­section (4) with effect from 1st April, 1970. It was urged that such a view would be borne out from the fact that the provisions relating to the restrictions imposed with regard to expenses incurred towards the maintenance and other expenditure of guest houses run by companies, were sought to be omitted with effect from 1st April, 1998.Dr. Pal urged that the interpretation regarding the allowability of rents, repairs, insurance and maintenance expenses of guest houses under Section 37(3) of the Act fall for consideration of the Bombay High Court in Commissioner of Income Tax vs. Chase Bright Steel Limited., reported in (1989) 177 ITR 124, wherein it was held that business expenditure, such as rent for premises used as a guest house and amounts spent on repairs to furniture used therein, could not be disallowed under Section 37(3) of the Act, inasmuch as the same had been allowed under Sections 30 and 31 of the Act. Dr. Pal also referred to another decision of the Bombay High Court in Century Spinning and Manufacturing Co. Ltd. vs. Commissioner of Income Tax, reported in (1991) 189 ITR 660, where following its earlier decision in the case of Chase Bright Steel Private Ltd. (supra), it was held that Sub­Section (4) of Section 37 of the Act is a non­obstante clause in relation to Sub­section (1) and Sub­Section (3) of Section 37 and if any expenditure or allowance was made allowable in other sections of the Act, the same could not be withdrawn or denied to the assessee because of the prohibitory provisions of Sub­ section (4) of Section 37. Page 16 of 28 O/TAXAP/369/2002 JUDGMENT A similar view appears to have been expressed by the Gujarat High Court in case of Commissioner of Income Tax vs. Ahmedabad Manufacturing and Calico Printing Co. Ltd., reported in (1992) 197 ITR 538; wherein it was also held that expenses incurred of the nature described in Sections 30 to 36 could not be disallowed under Section 37 (4) of the Act. Dr. Pal also referred to a Full Bench decision of the Kerala High Court in Commissioner of Income Tax vs. Travancore Cements Ltd., reported in (1999) 240 ITR 816, wherein a distinction was sought to be made between the expression \"repairs\" as used in Section 37 and the expression \"maintenance\" as used in Sub­section (3A) and (3B) of Section 37. Based on such distinction, it was held that the non­obstante clause in Section 37 (3A) cannot have any overriding effect in respect of other provisions pertaining to the allowances of expenditure under Sections 30 to 36 of the Act. Dr. Pal submitted that a similar distinction has been made by the Madras High Court in Commissioner of Income Tax vs. South India Viscose Ltd., reportesd in (2003) 259 ITR 107. Based on such distinction, it was held that rent paid for a guest house has been specifically dealt with in Section 30 and could not, therefore, be disallowed under Sub­section (4) of Section 37. Dr. Pal lastly referred to two decisions of the Calcutta High Court in Kesoram Industries and Cotton Mills Ltd. vs. Commissioner of Income Tax, reported in (1991) 191 ITR 518 and Commissioner of Income Tax vs. Upper Ganges Sugar Mills Ltd., reported in (1994) 206 ITR 215, which have both taken the view that business expenditure for guest houses would not be allowable, having regard to the provisions of Section 37(4) of the Act. Page 17 of 28 O/TAXAP/369/2002 JUDGMENT Dr. Pal submitted that apart from the said two decisions of the Calcutta High Court, the uniform decision of most of the High Courts appears to be that since the expenditure incurred for rents, rates, taxes, repairs and insurance of buildings and premises and furniture used for the purposes of business or profession, have been specifically provided for in Sections 30, 31 and 32 of the Act, benefits thereof could not be denied to the assessee under the relevant provisions of Section 37 of the Act. Dr. Pal urged that the judgment under appeal did not give any independent reasoning but was rendered following the decision of the Calcutta High Court in Century Spinning and Manufacturing Co. Ltd. and Upper Ganges Sugar Mills Ltd. (supra) and could not therefore be sustained. Appearing for the Revenue, Mr. Rajeev Dutta, learned senior counsel, however, contended that the provisions of Section 37 would have to be read in isolation from the provisions of Sections 30 to 36 of the Act as contemplated by the non­obstante clause in Sub­section (1) of Section 37. Mr. Dutta urged that the provisions of Section 37 had been correctly interpreted in the two decisions of the Calcutta High Court in Century Spinning and Manufacturing Co. Ltd. and Upper Ganges Sugar Mills Ltd. (supra). Mr. Dutta urged that it was the clear intention of the Legislature to exclude the benefit of deduction in respect of guest houses which were being run and maintained by companies in a lavish manner. Mr. Dutta submitted that while premises and buildings had been referred to in general terms in Sections 30, 31 and 32 of the Act, guest houses had been separately categorized for the purposes of Section 37 which would be quite evident from the manner in which expenses, including rent and maintenance, Page 18 of 28 O/TAXAP/369/2002 JUDGMENT were sought to be withdrawn in respect of such guest houses. Mr. Dutta submitted that the intention of the Legislature would be further clear from the insertion of Sub­ section (5) which brought within the scope and ambit of Section 37(4) all accommodation by whatever name called in the nature of a guest house. In support of his submissions, Mr. Dutta referred to the decision of Rajasthan High Court in Commissioner of Income Tax vs. Instrumentation Ltd. reported in (2002) 258 ITR 513, where upon considering the views expressed by the Bombay High Court and the Gujarat High Court in the cases of Chase Bright Steel Ltd. and Ahmedabad Mfg. And Calico Printing Co. Ltd. (supra), it was urged that expenditure incurred towards rent and maintenance of guest houses after 28th February 1970, was not deductible in view of Section 37(4) of the Act. Reference has also been made to a decision of the Madras High Court in Commissioner of Income Tax vs. Mathurantakam Co­operative Sugar Mills Ltd., reported in (2000) 241 ITR 817; wherein certain expenses, which came within the mischief of Section 37(4) of the Act were disallowed. Other similar decisions of the Madras and the Rajasthan High Courts were also referred to. Mr. Dutta lastly referred to another decision of the Calcutta High Court in the case of Commissioner of Income Tax vs. Biswanath Tea Co. Ltd. (2003) 264 ITR 166 to which one of us (Hon'ble Altamas Kabir, J) was a party. In the said case the Calcutta High Court had occasion to consider the various decisions which have also been cited by Dr. Pal in the instant case and upon a consideration of the language of Section 37(4), it was held that having regard to the unambiguous bar incorporated under Sub­ Page 19 of 28 O/TAXAP/369/2002 JUDGMENT section (4) of Section 37, the benefits indicated in Sections 30 to 36 although, independent of Section 37, could not be related to the guest house maintained by the assessee. It was held that apart from the view taken in Upper Ganges Sugar Mills Ltd. and Kesoram Industries and Cotton Mills Ltd., any other interpretation would negate the object of the prohibition engrafted in Sub­ Section (4). 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 Sub­sections (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 Sub­section (4) of Section 37. When the language of a statue 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 Page 20 of 28 O/TAXAP/369/2002 JUDGMENT section (5) of Section 37 and the provisions of Sections 31 and 32 would have been sufficient for the said purpose. The decisions cited by Dr. Pal contemplate situations where specific provision had been made in Sections 30 to 36 of the Act and it was felt that what had been specifically provided therein could not be excluded under Section 37. The clarification introduced by way of Sub­ section (5) to Section 37 was also not considered in the said case. As mentioned in the decision of the Calcutta High Court in the case of Biswanath Tea Co. Ltd. (supra), any other interpretation would negate the very purpose of Sub­section (4) of Section 37. It is another matter that at a subsequent point of time, the Legislature felt it necessary to omit the said provisions, but they were in the statute book at the relevant point of time. The rigours of the same, in our view, cannot be avoided in the instant case. The appeal is accordingly dismissed, but without any order as to costs.” 9. So far as question No.3 is concerned, the same is covered by the decision of Hon'ble Supreme Court in case of Commissioner of Income­ Tax V. Gujarat Narmada Vally Fertilizer Co. Ltd., reported in 281 ITR 297. “ The Income Tax Appellate Tribunal, Ahmedabad Bench \"B\" has referred the following questions under Section 256(1) of Page 21 of 28 O/TAXAP/369/2002 JUDGMENT the Income Tax Act, 1961 (the Act) at the instance of Commissioner of Income Tax, Baroda. \"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance u/s 32A of the I.T.Act on its cost of Rs.63,54,058/­? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that tractor­trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance u/s 32A of the I.T.Act?\" The respondent assessee company is a Public Limited Company carrying on business of manufacture of chemical fertilizers. The Assessment Year is 1983­84 and the relevant accounting period is calender year 1982. The assessee company installed drainage and sewerage network costing Rs.63,54,058/­ and claimed investment allowance on the said sum on the basis that the same formed part and parcel of plant and machinery. The claim was rejected by the Assessing Officer and Commissioner (Appeals). The assessee carried the matter in appeal before the Tribunal and the Tribunal held that the assessee was entitled to the investment allowance claimed by holding that the drainage and sewerage network was installed for the purpose involving handling of waste quantities of materials obtained on chemical reaction while manufacturing fertilizers. That the said network was utilised to channelize the fluids consisting of effluent, blowout washing spillage and leakage from various sections and units of Page 22 of 28 O/TAXAP/369/2002 JUDGMENT the main plant, which were either pumped or otherwise collected thereafter for the purposes of treatment and re­cycling or being released. The Tribunal, therefore, found that the drainage and sewerage network running through the factory and attached to the plant and machinery was a part and parcel of plant and machinery itself. In relation to the second question, the assessee claimed that certain tractor trailers were used in factory premises for lifting and carrying equipments and materials. The cost of such tractor trailers was Rs.2,82,508/­ and on the said sum , investment allowance was claimed. The Assessing Officer rejected the claim by holding that they were road transport vehicles. The CIT (Appeals) confirmed the said finding. The Tribunal, for the reasons stated in paragraph No.9 of its order, held that huge quantities of raw materials, finished products and equipments were required to be handled and transported within the factory premises and for such handling and transportation, the tractor trailers were used entitling the assessee to claim investment allowance. The matter has been heard on 9th and 10th March 2005, but the learned advocate for the applicant is absent. However, the learned advocate for the respondent assessee Shri Manish J. Shah is present and has made his submissions in support of the order made by the Tribunal. In relation to question No.1, the issue stands concluded by ratio of decision rendered by this Court in case of Commissioner of Income­Tax v. Gujarat State Fertilizers Co. Ltd., reported at 240 ITR 536. For the reasons stated in the aforesaid decision of this Court, question No.1 is Page 23 of 28 O/TAXAP/369/2002 JUDGMENT answered in the affirmative i.e. in favour of the assessee and against revenue. The Tribunal was right in holding that the drainage and sewerage network was entitled to investment allowance under Section 32A of the Act on the investment cost of Rs.63,54,058/­. In relation to the second question, the following decisions were cited on behalf of the assessee to submit that various courts have held that tractors – trailers used in the factory premises for lifting and carrying equipments and materials would be \"plant\" within the meaning of definition of the said term under Section 43(3) of the Act. It was further submitted that, for the purposes of ascertaining whether an item of plant or machinery is entitled to investment allowance or not, has to be tested by considering the function such plant or machinery performs during the conduct of the business of an assessee. (1) Shiv Construction Co. v. Commissioner of Income Tax, 165 ITR 160 (Guj.) (2) Commissioner of Income Tax v. U.P.Paschimi Kshetriya Vikas Nigam Ltd., 264 ITR 273 (Alh.) (3) Commissioner of Income Tax v. Tarun Commercial Mills Ltd., 151 ITR 75 (Guj.) (4) Commissioner of Income Tax v. SLM Maneklal Industries Ltd., 205 ITR 547 (Guj.) (5) Commissioner of Income Tax v. Progressive Engineering Co., 230 ITR 729 (A.P.) (6) Commissioner of Income Tax v. Sibson Construction & Co. 221 ITR 468 (Gauhati) (7) Commissioner of Income Tax v. Nandlal Parshuram, 239 ITR 497 (Gauhati) It is apparent that the Tribunal has found that the tractor trailers were used to transport huge quantities of raw materials, finished products and equipments within the factory premises. In light of this finding Page 24 of 28 O/TAXAP/369/2002 JUDGMENT of fact, it is not possible to state that the tractor trailers would fall within the meaning of road transport vehicles. Road transport vehicles would, in common parlance, mean vehicles which are used for transportation of goods or passengers by road. In normal circumstances, a tractor trailer is not used for transportation of people at least, though in given set of circumstances it may be involved in transportation of goods. However, what is material is as to where such transportation takes place. In the facts of the case, as noted hereinbefore, the Tribunal has found on facts that the tractor trailers have been used for handling and transportation of raw materials, finished products and equipments within the factory premises only. In these circumstances, applying the functional test, it may be safely stated that the decision of the Tribunal holding that the assessee is entitled to investment allowance by treating such tractor trailers as \"plant\" under Section 32A of the Act, is correct. However, there is one more aspect of the matter. Section 32A(1) of the Act stipulates that investment allowance equal to 25% of the actual cost of the plant or machinery is allowable as a deduction in respect of the previous year in which the machinery or plant was installed, or first put to use in the immediately succeeding previous year, then, in respect of that previous year. Therefore, whether tractor trailer could be termed to have been installed in the previous year, even if it is treated to be a plant, is required to be answered. In the case of Commissioner of Income Tax v. Thyristors Controls Pvt. Ltd., 207 ITR 317, this Court was called upon to decide whether books containing practical know­how kept in the office premises were entitled to investment allowance under Section 32A of Page 25 of 28 O/TAXAP/369/2002 JUDGMENT the Act. After holding that books would be plant within the meaning of section 32A(1) of the Act, the Court held that: \"The word \"installed\" occurring in section 32A(1) would not necessarily mean that it should be fixed in a position, but the word is also used in the sense of \"induct\" or \"introduce\" or \"placing an apparatus in position for service or use\" as held by the Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165. The word \"installed\" would mean to place in position for service or use or to set up for service or use. The books would be installed when they would be placed for use in the premises in question\" It may be noted that similar view is expressed by the Bombay High Court in case of Commissioner of Income Tax v. Bharat Radiators P. Ltd., 239 ITR 608 in relation to patterns and dyes and electrical installations. Therefore, applying the aforesaid test, it is apparent that the tractor trailer was inducted or introduced in the business and was, therefore, installed for the purposes of the business of the assessee entitling the assessee to claim investment allowance. In the result, question No.2 is answered in the affirmative i.e. in favour of the assessee and against revenue. The Tribunal was justified in holding that tractor trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance under Section 32A of the Act. The Reference stands disposed of accordingly. There shall be no order as to costs.“ Page 26 of 28 O/TAXAP/369/2002 JUDGMENT 10. Hence, in view of the above decision, we answer issue No.3 in favour of the assessee and against the Revenue. 11. In view of the above, we concur with the findings recorded by the learned Tribunal based on decision of Jurisdictional High Court and since the issues are already concluded vide the judgment rendered in the above decisions, we are not assigning elaborate reasons for disposing these appeals. Accordingly, the questions of law are answered as follows: I. In both the appeals, Issue No.1 is answered in favour of the assessee and against the Department. II. In Tax Appeal No.384 of 2000, issue No.2 is answered in favour of the Revenue and against the assessee and issue No.3 is answered in favour of the assessee and against the Revenue. 12. The appeals stand disposed of accordingly. Page 27 of 28 O/TAXAP/369/2002 JUDGMENT (K.S.JHAVERI, J.) (K.J.THAKER, J) ANKIT Page 28 of 28 "