G.K. CHOKSI & COMPANY versus COMMISSIONER OF INCOME TAX, GUJARAT

G.K. CHOKSI & COMPANYv. COMMISSIONER OF 565 INCOME TAX, GUJARAT [BHAN, J.]

p. 565

The present appeal has been directed against the final A judgment and order dated 16th August, 2001 passed by the High Court of Gujarat at Ahmedabad in Income Tax Reference No. 194/86 whereby the High Court has upheld the order passed by the Tribunal to the effect that the assessee was not entitled to deduction under Section 32(1 )(iv) of the Income Tax Act, 1961 (for short "the Act"). B

p. 565

The question involved in the present appeal relates to the correct interpretation of Section 32(l)(iv) of the Act and that whether in the facts and circumstances of the present case the assessee-appellant, a Chartered Accountant's firm would be entitled to deduction under the said section. C

p. 565

The brief facts are as under: The assessee (hereinafter referred to as "the appellant" ) is a firm of Chartered Accountants in Ahmedabad. The Assessment relates to the Year 1984-85 for the financial year ending on 31.03.1984. During the relevant D year the appellant constructed a building for the purpose of residence for its low paid employees and claimed initial depreciation @ 40% under Section 32(1)(iv) of the Act amounting to Rs.43,505/-on the actual cost of the building i.e. Rs.1,08,757/-. The Income Tax Officer (ITO) vide its order dated 15. l .1985 rejected the claim of the assessee-appellant on E the ground that the said provision is applicable to an assessee carrying on "business" and the same is not available to a professional.

p. 565

The Commissioner oflncome Tax (Appeals) [for short CIT (A)] by its order dated 30.4.1985 reversed the order of the Income Tax Officer relying upon the judgment of this Court in Barendra Prasad Ray v. F Income Tax Officer, [1981] 2 SCC 693, and allowed the claim of the appellant with the further direction to the Income Tax Officer grant initial depreciation @ 40% for the building erected by the appellant for the residential purposes of its employees.

p. 565

Being aggrieved by the order passed by the CIT(A), Revenue filed an appeal before the Income Tax Appellate Tribunal (for short ''the Tribunal"). The Tribunal reversed the order passed by the CIT (A) and restored the order passed by the ITO. It was held that the appellant was not entitled to the relief claimed. That the judgment in Barendra Prasad H A Ray (supra) was not applicable to the facts and circumstances of the present case. That, Barendra Prasad Ray (supra) was decided by this Court in peculiar facts and circumstances prevailing in that case and the same was restricted to the facts prevalent therein. It was also observed that in the said case, this Court was dealing with another P.rovisiqn, i.e., B Section 9 of the Act and the observations made therein could not be applied to the facts of the present case. The Tribunal also noted the difference between the provisions of Section 32(1) and Section 32(1 )(iv) of the Act.

pp. 565–566

Aggrieved by the order passed by the Tribunal, the appellant filed a Reference Application under Section 256(1) of the Act before the Tribunal to refer certain questions of law to the jurisdictional High Court for its opinion. The Tribunal referred the following question oflaw to the jurisdictional High Court for its opinion: D "Whether, on the facts and in the circumstances of the case, the Triblll1lli was right in law in holding that the assessee was not entitled to deduction under Section 32(1) (iv) of the Act?"

p. 566, margin C

The High Court by its impugned judgment has confirmed the order passed by the Tribunal and held that the appellant is not entitled to the deduction claimed by it under Section 32(1) (iv) of the Act on the ground that it was a firm of professionals, who do not come within the purview of Section 32(1) (iv) of the Act.

p. 566, margin C

The relevant provisions of Section 32 of the Act, as they existed at the relevant time, are reproduced below: "Section 32 - Depreciation (1) In respect of depreciation of buildings, machinery, plant or furniture o'M!ed by the assessee and used for the purposes of the business or profession, tl1e following deductions shall, subject to the provisions of Section 34, be allowed: (i) xxx xxx xxx (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be A prescribed: Provided that where the actual cost of any machinery or plant does not exceed [five thousand rupees], the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the B assessee for the purposes of his business or profession; Provided further that no deduction shall be allowed under this clause or clause (iii) in respect of any motor car manufactured outside India, where such motor car is acquired by the c assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists; (iia) xxx xxx xxx (Iii) xxx xxx xxx (iv) in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head "Salaries" is ten thousand rupees or less, or where E the building is used solely or mainly for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room, a sum equal to forty per cent of the actual cost of the building to the assessee in respect of the previous year of erection of the F building. (v) xxxxxxxxxxxx (vi) xxxxxxxxxx"

pp. 566–567, margin E

Shri Sameer Parekh, learned counsel appearing for the appellant G submitted that Part D of the Act reads as "Profit and Gains of Business or Profession". That, Section 32 relates both to "business" as also "profession" and since Section 32(1) of which (iv) is a sub clause, the assessee carrying on profession would be entitled to the depreciation under Section 32(1) (iv) though the word "profession" does not find mention in sub-clause (iv). That the words "business" and "profession" are defined separately under the Act; "business" has been defined under Section 2(13) and "profession" under Section 2(36) and both the definitions are inclusive. That, Section 2 specifically reads "in this Act, unless the context otherwise requires" and therefore the definition under the Act are subject to the context and can be read interchangeably at least one term carrying on within its fold other term if the context so requires. That, the word "business" appearing in sub-clause (iv) of Section 32(1) in the context clearly refers to both "business" and "profession". That, the word "business" is used in the context of employees and is clearly intended to cover both "business" as also "profession". It was contended that Section 32( 1) (iv) should be given a purposive interpretation to extend the benefit to the professionals as well. That if two opinions are possible, then the one in favour of the assessee should be adopted.

pp. 567–568

It is submitted that in Barendra Prasad Ray ·s case (supra), this Court in the context of Section 9 of the Act, has construed the words 'business connection' to include professional connection as well. It was observed that the expression "business" does not necessarily mean trade or manufacture only and the same is used as including within its scope professions, vocations and callings from a long time. It is further submitted that Barendra Prasad Ray's case (supra) was clearly applicable to the facts of the present case and the High Court has erred in distinguishing the same.

p. 568, margin D

As against this Mr. V. Shekhar, learned senior counsel appearing for the Revenue, submits that Section 32( 1 )(iv) specifically refers to and meant for assessees who are in business. The same cannot be made applicable to professionals, as there is no reference in this sub-clause to the assessees who are in profession. According to him, the assessees who are carrying on profession would be deemed to be excluded by the Statute. That the assessees who are not in profession are entitled to the benefit of Section 32( 1) of the Act which is meant for the assessees carrying on business only. According to the learned counsel, sub-section (I) of Section 32 lays down general conditions or basic requirements on fulfillment of which an assessee shall become eligible for deduction as INCOME TAX, GUJARAT [BHAN, provided in the various clauses which follow. That, the section various clauses would operate on further laid down in each such individual clause(s). It is though Section 32(1) refers to both "business" and sections, namely, (i) and (iv) would not be controlled Prasad Ray's case (supra) has no application to case. According to the learned counsel, in the said dealing with a situation arising under Section 9 of with income deemed to accrue or arise in India. operates in an entirely different field while Section surrounding section and sub-sections operate in ratio of the said judgment carinot be imported to present case and the High Court has rightly distinguished

pp. 568–569, margin F

We do not find much substance in the by the learned counsel for the appellant. Section not help the appellant in any way to construe appearing in sub-section 32(1) (iv) to include "profession" legislature intended to have different scope for business Section 32 (1 ). If the legislature had intended to the word "business", then there was no need to words, i.e., "business" or "profession" in Section

p. 569, margin C

Section 32 (1) stipulates that on buildings, furniture which is owned by an assessee and used "business or profession", depreciation shall be deduction. Section 32 (1) uses the phrase "the following therefore it is apparent that the said sub-section conditions or basic requirements, on fulfillment of become eligible for deductions as provided in the follow. The learned counsel appearing for the contended that from the Scheme of the Section it is clauses shall operate on further specific conditions individual clause. Clause.(i) deals with case of ordinarily plying on inland waters, clause (ii) machinery, plant or furniture, other than ships and business and profession in regard to the claim for of the building , machinery, plant or has used the word "business" only. conscious of the fact that the business separate and they cannot be used fact that the Legislature under clause to the assessees carrying on business has specifically extended the benefit carrying on "business" as well as "profession" the legislature has restricted the "business" only.

pp. 569–570, margin D

This Court rendered the decision (supra) in the context of Section 9 the case laws, definitions, dictionary "The word "business" is one carried on continuously and application of his labour or We are of the view that in "business connection" is warrant for giving a restricted connections" from its scope."

p. 570, margin C

In Barendra Prasad Ray's interpreting the expression "business of the Act and held that there was meaning to it to exclude "professional 9 (1) deals with a different situation. while Section 32 occurs in Part D of was rendered on the peculiar facts has to be restricted to the situation to every case irrespective of its facts. IV, Part D of the Act which deals professions. The wording of two provisions, 32 of the Act are quite different and "business connection" while interpreting to a fact situation under Section G.K. CHOKSI & COMPANY COMMISSIONER INCOME TAX, GUJARAT "business" occuning in Section 32(1 )(iv) would well.

pp. 570–571, margin E

As already observed, Section 32(1) conditions or basic requirements on fulfillment become eligible for deduction as provided follow. Clauses (i), (ii) and (iv) operate in different set of assessees for the purposes of opinion Barendra Prasad Ray's case (supra) present case.

p. 571, margin A

Part D consists of Sections 28 to with profits and gains of business or profession. been used in certain sections as "business has the phrase been used as the "business wherever the legislature intended that the benefit should be for both business or profession, it or profession" and wherever it intended to business or profession, then the legislature "business" or "profession", meaning thereby benefit to either "business" or "profession", the other.

p. 571, margin C

We agree with the submission appellant that in view of the settled law, if two then the one in favour of the assessee should the view that in the present case two interpretations the word "business" occurring in clause (iv) of imagination, can be said to include "profession" expression "business" is interpreted as "profession", it would not mean that the lacuna giving a wider interpretation to the word business. Section 32(1) (iv) which envisages the scope in it "profession" as well. If the expression include within its scope "profession" as well, to the provisions of the Act. Such interpretation creating an ima,,,oinative lacuna and then filling A in law. The contention of the counsel for the appellant that Section 32 (l) (iv) should be given purposive interpretation to include "profession", has thus to be rejected.

pp. 571–572, margin E

For the foregoing reasons, we do not find any merit in the appeal and dismiss the same, leaving the parties to bear their own costs. S.K.S. Appeal dismissed.

p. 572