TMI Blog1996 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether, on the facts and in the circumstances of the case, and also in the light of the decision of the Kerala High Court in Kesaria Tea Co. Ltd. v. CIT [1989] 180 ITR 134, is not the subsidy received by the assessee income in the hands of the assessee ? 3. Whether, on the facts and in the circumstances of the case and in the absence of a claim for E.S.A. for the studio (or the main floor) before the first appellate authority and the same being not claimed at all before the Tribunal in accordance with law, the Tribunal is right and with jurisdiction in considering the claim by itself and in allowing the same for the 'main floor' ?" Income-tax Reference No. 53 of 1991 : "1. Whether, on the facts and in the circumstances of the case, the cost of production of the film having been accepted as a stock-in-trade, the expenditure in respect of the ingredients embodied in the stock-in-trade and which merges into stock-in-trade could be isolated and the provisions of section 37(3A) applied in respect of such bifurcated expenses ? 2. Whether, on the facts and in the circumstances of the case, it could not be held that the cost of production of the film including prerelease, adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the expenditure is in the nature of capital expenditure or personal expenses of the assessee, such expenditure shall not be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Apart therefrom, when the other statutory provisions are taken up for consideration, certain other situations would also appear as carving out the stated description therein from the general phrase "any expenditure" appearing in section 37(1). Illustratively, section 37(2) of the Act refers to entertainment expenditure and in regard thereto statutory provision specifying the limit and its excesses and their consequences. Similarly section 37(2A) of the Act also specifies a further added facet of entertainment expenditure. We also find the statutory provision of section 37(2B) of the Act relating to the expenditure on advertisement as specified therein. Similarly, we also find section 37(3) of the Act relating to expenditure on advertisement or on maintenance of any residential accommodation specified specifically therein. If other statutory provisions of section 37(1) of the Act are considered, for the purpose of understanding the true and correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 37(1) of the Act would have any occasion of inter-play. In other words, the statutory requirements of section 37(1) of the Act analysed hereinbefore for the purposes of these references, whether the nature or the expenditure being of capital nature or personal expenses of the assessee would have any relevance in the application of the statutory provision (section 37(3A) and (3B) in question. Reading the plain language of all the statutory provisions other than section 37(1) of the Act, as we have pointed out hereinbefore, it would be obvious that each one of the subsequent provisions gets enacted with the same prefixed phrase "notwithstanding anything contained in sub-section (1)". In other words, it would be clear that section 37 of the Act which is of a residuary character with reference to the earlier statutory provisions dealing with the aspect of deduction, except section 37(1) of the Act, all other statutory provisions legislatively speak of their independent and separate existence on the statute book. In addition, it would also be clear that the statutory provision of section 37 of the Act relates to any expenditure in the process of computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT (No. 1) [1979] 118 ITR 101, wherein there was an occasion to consider section 37(3) of the Act. In Mohan Meakin's case [1979] 118 ITR 101, the Tribunal had fallen into an identical and similar error in the matter of the assessee, a public limited company, carrying on the business of manufacture and sale of beer, Indian made foreign liquor and other beverages. The Tribunal had taken the view that the expenditure incurred by the assessee on the installation of neon-signs being an expenditure of capital nature was not allowable as a deduction under section 37 of the Act. It is in this context the Himachal Pradesh High Court observed that the question whether it is of revenue or capital nature would not be the relevant consideration but the relevant consideration would be the conditions and restrictions contemplated by section 37(3) itself. The use of the non-obstante clause clearly excludes the considerations which are contemplated by section 37(1) of the Act and, therefore, when once it is found that a particular deduction can be considered on account of expenditure, the said deduction squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs. 6,63,954. Their particulars are in the following manner : Rs. " Pre-release advertisment 1,92,027 Payments to hotels under production expenses 1,03,052 Production expenses for 3 cars and one jeep 3,68,875 ------------------------ Total 6,63,954." ------------------------ Thereafter the first appellate authority directed to consider the question of disallowance at twenty per cent. allowing basic deduction in respect of other items. The Income-tax Appellate Tribunal, Cochin Bench, was approached both by the assessee as well as by the Revenue. The Tribunal continued to fall into the legal trap of understanding the plain language of the statutory provisions discussed in detail hereinbefore by us. The Tribunal has again fallen into a consequential legal error in looking at the question from a special angle that the assessee is engaged in the production and exhibition of films. In our judgment, in fact the question as to whether the assessee is engaged in the production and exhibition of films would not be of any help to understand the statutory provision which is applicable to the question of deduction in relation to the expenditure not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause continues to have its force in determining the true scope and legal effect of all the sub-sections as pointed out above. In the context of section 37(3A) of the Act it is plain that the question whether it is capital expenditure or otherwise is not relevant because each of the subsequent sub-sections would have to be understood as independent and separate in existence and consequent enforcement in regard thereto. The question of application of the provisions of section 37(3A) of the Act would have to be determined and answered on the facts in the light of our above observations. The authorities will answer them accordingly. There is yet another question awaiting our answer and it relates to the subsidy received by the assessee and as to whether it would be income in the hands of the assessee in the years in question. A Division Bench of this court (of which one of us-myself-was a party) had an occasion to consider the same 'question in I.T.R. No. 30 of 1990 (CIT v. Udaya Pictures (P.) Ltd. [1997] 225 ITR 394 ) receiving the answer in favour of the Revenue that it is income of the assessee during the assessment year in question. The question has been considered in detail w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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