TMI Blog1996 (3) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... repairs and rent in respect of guest house is that these expenditures are allowable under section 30 of the Act and, therefore, the disallowance under section 37(4) cannot be made in view of the Bombay High Court decision in the case of CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124. Similar contention has been raised in respect to depreciation of the guest house as it is allowable under section 32. On the other hand, the learned Departmental Representative has opposed such contention of the assessee in view of the latest decisions of the Bombay High Court in CIT v. Ocean Carriers (P.) Ltd. [1995] 211 ITR 357 and Raja Bahadur Motilal Poona Mills Ltd. v. CIT [1995] 212 ITR 175 and also the decision of the Tribunal reported as Asstt. CIT v. Trade Links Ltd. [1995] 54 ITD 108 (Delhi). In respect of expenditure on canteen provision and gas charges, the contention of the assessee is that these cannot be treated as maintenance expenses of guest house. According to him, these expenditure are incurred in respect to the persons who visited the guest house and not in respect of the guest house itself. Regarding telephone charges it was submitted by him that it cannot be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the ITAT in the case of J.K. Synthetics Ltd. v. ITO [1990] 32 ITD 775 (Delhi). The other controversy whether the expenditure by way of rent and depreciation allowance in respect of guest house can be disallowed under section 37(4) or not requires serious consideration. For the first time the issue whether expenditure on rent and repairs in respect of guest house could be disallowed under section 37(3) was raised before the Hon'ble Bombay High Court in the case of Chase Bright Steel Ltd. (No. 1). The Court considered the language of section 37(3) and noted that the provisions of section 37(3) stated with the words "notwithstanding anything contained in sub-section (1)". In view of this language, the Hon'ble High Court held that the non obstante provisions were vis-a-vis sub-section (1) of section 37 and not vis-a-vis any other provisions of the Act. Therefore, the court held that any expenditure which is allowable under the provisions of sections 30 to 36 could not be disallowed under section 37(3). Since, according to the court, rent and repairs of the guest house were allowable under section 30 the issue was decided in favour of the assessee. Thereafter such issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced as under : " 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 assessee's principal non-resident shipping companies in these flats, the assessee-company had treated these flats as its own guest house and since these guest houses were not maintained exclusively as a holiday home for the employees of the assessee-company, the assessee-company was not entitled to allowance under section 37(4) in respect of any expenditure on maintenance thereof incurred after February 28, 1970, nor to any depreciation allowance. The Tribunal was wrong in setting aside the order of the Commissioner of Income-tax and upholding the action of the Income-tax Officer. Hence, we answer the question referred in the negative and in favour of the Revenue. " Similarly in the case of Raja Bahadur Motilal Poona Mills Ltd. the court was not concerned with the controversy as arising in this appeal. The question before the Hon'ble Court was about the nature of the expenditure. The question referred in that case reads as under : " Whether, on the facts and in the circumstances of the case, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cientific basis followed by the company for determination of the provision, the closing provision required as on 31-12-1982 was ascertained at Rs. 76,62,848 as against the provision at Rs. 74,98,304 lying in the accounts, requiring an additional provision of Rs. 1,64,543 to be made good in the 1982 accounts. " Further at page-2 of the letter it has been stated as under : " However, as a prudent measure of business practice, the company has been consistently following a system of ascertaining at the end of each year the quantum of sales for which such declaration forms have not been received and determining and providing for the differential sales tax liability and charging the said expenditure to its business income. In event of the declaration forms being received at a subsequent date, the company has also been ensuring that the liability originally, provided for is suitably reduced by necessary addition to the business income. " Assessee claimed the aforesaid amount as expenditure on the basis of mercantile system of accounting. The claim was supported by the decision of the apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. Such claim was reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would crystallize at that moment only. Hence the decision of the apex court, in our opinion, does not help the assessee. Another contention was raised by the learned counsel for the assessee that this system is followed by the assessee consistently for many years and such claim has been allowed in the past. Hence, there is no reason for departing with the same. We are unable to accept this proposition. In our view, if a claim is not legally allowable, then it should not be allowed merely because it had been allowed in the past. Under the mercantile system of accounting, an expenditure is allowable even if the payment is not made if it is otherwise legally allowable. The view of ours is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. Wherein similar proposition was turned down. In that case a particular method of account of closing stock was being consistently followed which was found by the authorities to be defective. The Supreme Court negatived the contention of the assessee that a claim of the assessee should be allowed as it was based on the method of accounting being consistently followed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, applicable to assessment year 1983-84, assessee was entitled to a deduction of 1% of the export turnover and a further deduction of the amount equal to 5% of the amount by which the export turnover during the previous year exceeded the export turnover during the immediately preceding year. The contention of the learned counsel for the assessee has to be rejected on two grounds, viz., (i) the word "exceeds" used by the Legislature in sub-clause (b) of clause (1) of section 80HHC presupposes the existence of some turnover in the preceding year. Therefore such provisions cannot be applied to a situation where there is no export in the preceding year, (ii) if the contention of the assessee is accepted it would amount to discrimination between two equals. For example, company A exports goods worth Rs. 1 crore during the year without there being any export in the preceding year and company B who has exported goods worth Rs. 50 lakhs in the preceding year also exports goods worth Rs. 1 crore during the year under consideration. In such situation though both the companies have exported goods worth Rs. 1 crore, they will be allowed different deductions if the contention of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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