Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Repair‑‑‑Ceiling on expenditure‑‑‑Scope of S.37(3A)‑‑‑Section 37 applies only to expenses not falling under Ss.30 to 36‑‑‑Expenditure on repair of‑plant and machinery is deductible under S.31‑ Motor cars constitute plant‑‑‑Expenditure on repair of cars is not subject to ceiling prescribed by S.37(3A)‑‑‑-- Indian Income Tax Act, 1961, Ss.31 & 37‑ [CIT v. Navodaya (1997) 225 ITR 399 (Ker.) overruled and CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appendix) (infra) reversed].

Section 31 of the Income Tax Act, 1961, allows deduction of expenditure on repairs and insurance of machinery, plant and furniture. 'Plant' is defined in section 43(3) of the Act. It includes all motor vehicles including motor car. A plain reading of subsection (1) of section 37 would make it clear that the deductions referred to under sections 30 to 36 are excluded from the purview of section 37(1). Section 37(3A) of the Act provides that notwithstanding anything contained in subsection (1), 20 per cent. of any expenditure in excess of Rs.l lakh incurred by an assessee in respect of one or more of the items specified in subsection (3B) shall not be allowed as deduction in computing the business income. Clause (ii) in subsection (3B) specifies one such expenditure as "running and maintenance of aircraft and motor cars". The expenditure on repairs contemplated under section 31 is entirely different from the expenditure towards maintenance contemplated in section 37(3B). From the dictionary meaning of these two expressions it is very clear that the expression "repair" presupposes certain injury or partial destruction. But the expression "maintenance" does not do so. It means to keep a particular thing in its similar state. Hence, the expenditure on "repairs" dealt with under section 31 of the Act is entirely different from the expenditure on maintenance covered by subsections (3A) and (3B) of section 37. The non obstante clause in section 37(3A) cannot have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the Act. The expenditure towards repairs and premium paid towards insurance of motor cars is deductible under section 31 of the Act and the same expenditure will not fall within the mischief of section 37(3A).

CIT v. Navodaya (1997) 225 ITR 399 (Ker.) overruled.

CIT v. A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker.) and CIT v. Midland Rubbers and Produce Co. Ltd. (1998) 232 ITR 530 (Ker.) affirmed.

Grorge Williamson (Assam) Ltd. v. CIT (1997) 223 ITR 203 (Gauhati) fol.

CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appendix) (infra) reversed.

CIT v. Bharat Industrial Works (1997) 226 ITR 543 (MP); CIT v. Chase Bright Steel Ltd. (No. 1) (1989) 177 ITIt 124 (Bom.); CIT v. K.N. Oil Industries (1997) 226 ITR 547 (MP); CIT v. Price Waterhouse (1994) 207 ITR 564 (Cal.); CIT v. Steel Tubes of India Ltd. (No.2) (1997) 228 ITR 418 (MP); CIT v. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal.) and Mohan Meakin Breweries Ltd. v. CIT (No.l) (1979) 118 ITR 101 (HP) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Joseph Markos and Thomas Vellapally for the Assessee.

JUDGMENT

R. RAJENDRA BABU, J.‑‑‑The question that is referred for consideration of the Full Bench is whether the expenses met by the assessee for the repairs of the car will not fall within the mischief of section 37(3A) of the Income Tax Act, 1961.

A Division Bench of this Court in I.T.R. No.83 of 1993‑‑‑CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appendix), answered the question in the affirmative in favour of the Revenue following an earlier decision of the same Bench in CIT v. Navodaya (1997) 225 ITR 399. Another Bench of this Court including one of us (Usha J.) took a contrary view in CIT v. A.V. Thomas and Co. Ltd. (1997) 225 ITR 29. Since the judgment pronounced by one Bench of this Court in CIT v. A.V. Thomas and Co. Ltd. (1997) 225 ITR 29, and anothe4' Bench in CIT v. Navodaya (1997) 225 ITR 399, contain contrary views in the matter, the question was referred to this Full Bench for consideration and decision. The assessee was a public limited company engaged in the production of white cement. For the assessment year 1985‑86, the assessee met expenditure towards car repairs. The assessing authority included the motor car expenses and expenses f6r repairs of the cars in the aggregate expenses for the purpose of computing disallowance under section 37(3A) of the Income‑tax Act (for short "the Act"). On appeal, the Commissioner of Income‑tax. (Appeals) held that the repairs will not fall within the mischief of section 37(3A) and allowed the claim of the assessee. On further appeal at the instance of the Revenue, the Tribunal upheld the order of the Commissioner of Income‑tax and held that the repairs of the car will not fall within the mischief of section 37(3A) of the Act. The Tribunal upheld the order of the Commissioner of Income‑tax following its earlier order in the assessee's own case for the assessment year 1984‑85. At the instance of the Commissioner of Income‑tax, the Appellate Tribunal referred the following question of law for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the repairs will not fall within the mischief of section 37(3A) of the Income Tax Act, 1961?"

The assessee‑company had incurred certain expenditure towards repairs of car and claimed deduction under section 31(1) of the Act. The Commissioner of Income‑tax as well as the Tribunal held that the repairs of the car will not fall within the mischief of section 37(3A) and the assessee will be entitled to claim deduction under section 31(1) of the Act. Learned senior standing counsel for the Revenue argued that the repairs of cars will not come within the ambit of section 31 of the Act, that section 37(3A) was a substantive provision which had an overriding effect on all the provisions in the Act pertaining to allowance of expenditure in computing the income from business and profession and the non‑obstante clause in section 37(3A) would exclude the provisions contained under section 31 of the Act and, therefore, the provisions contained in section 37(3A) would be applicable in the case of the assessee. Learned counsel for the assessee would contend that section 37(3A) of the Act would take in only those matters which come under section 37(1) and it shall not have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the Act. For a proper appreciation of the rival arguments, it would be convenient to refer to the relevant provisions of law. Section 31 reads as follows:

"Repairs and insurance of machinery plant and furniture: ‑‑‑In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed the amount paid on account of current repairs thereto the amount of any premium, paid in respect of insurance against risk of damage or destruction thereof. "Plant" as defined in section 43(3) of the Act includes all motor vehicles including motor car. Thus a reading of section 31 would reveal that the expenditure met towards repairs and the insurance of motor cars would come within the ambit of section 31.

Section 37(1) reads: "Any expenditure (not being‑expenditure of the nature described in sections 30 to 36 and section 80VV 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'." (Emphasis supplied)

A plain reading of subsection (1) of section 37 would make it clear that the deductions referred to under sections 30 to 36 are excluded from the purview of section 37(1). Section 37(3A) reads:

"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'." (Emphasis supplied)

The relevant portion of subsection (3B) reads:

"The expenditure referred to in subsection (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 hotels."

The underlined portion in section 37(1) would make it clear that section 37(1) is intended td take in only such expenditure which is not covered by sections 30 to 36 and section 80VV and not in the nature of a capital expenditure or personal expenses and those items of expenses met by an assessee are specifically excluded from the ambit of section 37(1). Section 37(3A) of the Act provides that notwithstanding anything contained in subsection (1), 20 per cent. of any expenditure in excess of Rs.l lakh incurred by an assessee in respect of one or more of the items specified in subsection (3B) shall not be allowed as deduction in computing the business income. The underlined portion in subsection (3A) would make it cleat' that it would apply only to those items of expenditure covered by sub section (3B). Clause (ii) in subsection (3B) specifies one such expenditure as "running and maintenance of aircraft and motor cars". The deduction in respect of expenditure incurred on repairs and insurance of motor cars is allowable under section 31 of the Act, as "Plant" as defined in section 43(3) of the Act takes in motor vehicles. The definition of "plant" in section 43(3)

ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession."

The definition of plant takes in all types of vehicles, including all types of motor vehicles. Clause (ii) of section 37(3B) deals with the running and maintenance of aircrafts and motor cars. The expenditure in respect of "running and maintenance of aircrafts and motor cars" are the two items coming within clause (ii) .of subsection (3B). Section 31 relates to the expenditure regarding repairs and premium paid in respect of insurance of plant which takes in different items including all types of motor vehicles whereas the expenditure incurred on running and maintenance of aircrafts and motor cars are the two specific items covered by clause (ii) of section 37(3B) of the Act. Further restrictions are imposed in respect of the expenditure dealt with in clause (ii) of subsection (3B) by subsection (3C) and (3D) of the Act. Thus it is clear that the expenditure towards repairs of car and the payment of premium are specifically dealt with under section 31 of Act and the expenditure towards the running and maintenance of car, which is an entirely different item of expenditure, is dealt with under section 37(3A) of the Act. A consideration of the above provisions would make it clear that the non‑obstante clause in subsection (3A) would relate only to such of the expenditure referred to in section 37(1) and specified in section 37(3B). The expenditure ‑in respect of which subsection (3A) of section 37 can be attracted, in the ordinary course, can only be those items of expenditure which fall under section 37(1) and section 37(1) takes in only such expenditure which does not fall within section 30 to section 36 and section 80VV and not being in the nature of capital expenditure or personal expenditure.

The expenditure on repairs contemplated under section 31 is entirely different from the expenditure towards maintenance contemplated in section 37(3B). This aspect was considered by the Gauhati High Court in George Willimason (Assam) Ltd. v. CIT (1997) 223 ITR 203. That was a case where the assessee‑company claimed deduction of some amount towards cost of repairs of motor, vehicle. The assessing authority disallowed the claim and that was confirmed by the appellate authority as well as by the Tribunal. There a Division Bench of the High Court of Gauhati held (page 205):

"In our opinion, the expressions 'repairs' and 'maintenance' are two different expressions. In this connection, we may refer to the dictionary meaning of the expressions 'repairs 'and 'maintenance'. As per Black's Law Dictionary (fifth edition), 'repair' means 'to mend, remedy, restore, renovate. To restore to a sound or good state after decay, injury, dilapidation, or partial destruction'. Whereas the meaning of the expression, 'maintenance' is 'act of maintaining keeping up, supporting.. ..from the dictionary meaning of these two expressions it is very clear that the expression 'repair' presupposes certain injury or partial destruction. But the expression 'maintenance' does not do so. It means to keep a particular thing in its similar state. Therefore, in our opinion, the Legislature being fully aware of the difference of expressions, dealt with 'expenses on repairs' in section 31 and 'expenses for running and maintenance' in section 37(3A) and (3B)."

We are in respectful agreement with the view taken in the above decision that the expenditure on "repairs" dealt with under section 31 of the Act is entirely different from the expenditure on maintenance covered by subsections (3A) and (3B) of section 37 of the Act.

Section 37 is a "general" provision regarding the expenditure not covered by sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee. Subsection (1) of section 37 makes it so clear. Subsections (2) and (2A) impose certain restrictions in allowing deduction to the expenditure in the form of entertainment expenditure notwithstanding subsection (1) of section 37. Sub section (2B) says that notwithstanding anything contained in section 37(1), no allowance shall be made in respect, of any expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like published by any political party. Subsection (3) imposes a restriction that notwithstanding subsection (1), the expenditure towards advertisement or on maintenance of residential accommodation including guest house or in connection with the travelling of an employee, shall be allowed only to the prescribed limit. Subsection (3A) makes certain restrictions in allowing the expenditure on the items mentioned in subsection (3B) notwithstanding section 37(1). Subsection (3B) deals with the following items of expenditure: (i) advertisement, publicity and sales promotion, (ii) running and maintenance of aircrafts and motor cars, and (iii) payment made to hotels. Subsections (3C) and (3D) also deal with some of the items of expenditure covered by subsection (3B). Subsection (4) deals with further restrictions on the allowance of expenditure on maintenance of residential accommodation in the nature of guest house. Subsection (5) clarifies what is accommodation in the nature of guest house. On going through the above provisions, it is clear that the expenditure covered by all the subsections of section 37 are items of expenditure not covered by sections 30 to 36. Hence, the items of expenditure covered by sections 30 to 36 are different from the items of expenditure covered by the different subsections of section 37. The above circumstances also would make it clear that the non obstante clause in section 37(3A) applies only to those of the items covered by section 37(1) and it cannot have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the of the Act.

Learned counsel for the assessee relying on a decision of a Division Bench of the Bombay High Court in CIT v. Chase Bright Steel Ltd. (No. 1) (1989) 177 ITR 124 argued that the expenditure allowable under sections 30 and 31 of the Act cannot be disallowed under any of the provisions of the subsections of section 37. In the above case learned counsel for the Department had advanced an argument that section 37(3) was a substantive provision which had an overriding effect on all the provisions in the Act pertaining to allowance of expenditure in computing the income from business and profession and that the provision contained in section 37(3) specifically covered all kinds of expenses incurred in connection with the guest house maintained by an assessee for the purpose of its business. There the Division Bench of the Bombay High Court held that section 37(3) contemplates allowance of expenditure which was neither personal nor of capital nature nor which was of the nature prescribed in sections 30 to 36 of the Act and rent which was allowable under section 30 and the expenditure relating to the repairs of the furniture falling under section 31 could not again fall for consideration under section 37(1) of the Act.

In CIT v. Tungabhadra Industries Ltd. (1994) 207‑ ITR 553, the Calcutta High Court also had taken the same view. There it was held that section 37(l) covered only, expenditure not being expenditure of the nature described in sections 30 to 36 and the restriction or limitation as contained in section 37(3A) or 37(3B) cannot have any manner of application to the expenditure allowable under sections 30 to 36 and the expenditure allowable under section 31 cannot come within the purview of section 37(3A). There it was further held that only such expenditure which falls under section 37 can be brought within the net of restriction made in section 37(3B). The same view was reiterated by the above Court in CIT v. Price Water‑house (1994) 207 ITR 564 (Cal.). A Division Bench of the High Court of Madhya Pradesh in CIT v. Steel Tubes of India Ltd. (No.2) (1997) 228 ITR 418 followed the decision of the Bombay High Court in CIT v. Chase Bright Steel Ltd. (No. 1) (1989) 177 ITR 124 and held that repairs of cars are to be excluded from the purview of section 37(3A).

A Division Bench of this Court in CIT v. A.V. Thomas and Co. Ltd. (1997) 225 ITR 29 and in CIT v. Midland Rubbers and Produce Co. Ltd. (1998) 232 ITR 530, following the decisions of the High Courts of Bombay and Calcutta in the decisions cited supra held that the repairs of car and the premium paid towards insurance are to be deducted under section 31 of the Act and such expenditure shall not come within the mischief of section 37(3A) of the Act. The above decisions were pronounced on January 10, 1997 without noticing the earlier decisions of another Bench of this Court in CIT v. Navodaya (1997) 225 ITR 399 and CIT v. Travancore Cements Litt. (1999) 240 ITR 825 (Appex) pronounced in September and November, 1996. In CIT v. Navodaya (1997) 225 ITR 399 (Ken.) and in CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appex), the assessee S in the present case, a Division Bench of this Court took the view that the expenditure on repairs of car also would come within the mischief of section 37(3A) of the Act. In CIT v. Navodaya (1997) 225 ITR 399 (Ker.), it was held (headnote):

"Each of the subsequent subsections of section 37 is prefixed by the same non‑obstante clause; 'Notwithstanding anything contained in subsection (1).' These subsections have to be read de hors the statutory provisions of section 37(l). Each one of the subsections other than section 37(l) of the Act, would have to be understood as contemplating a separate and distinct head of deduction. Considerations which are contemplated by section 37(1) are not applicable. Once it is found that a particular deduction is referable to the concerned subsection applicable to the factual matrix, deduction would be said to squarely fall within the provisions of the concerned subsection. Obviously, therefore, the situation whether the expenditure is of a capital nature or of a revenue nature would pale into insignificance and would obviously be wholly to be left out of consideration. This is the obvious meaning of the non‑obstante clause, and in the context it would have to be emphasized that this non‑obstante clause is a prefix to all the concerned subsections of section 37 of the Act. "

In support of the argument of learned counsel appearing for the Revenue, reliance was placed on the decisions of the Madhya Pradesh High Court in CIT v. Bharat Industrial Works (1997) 226 ITR 543 and CIT v. K.N. Oil Industries (1997) 226 ITR 547. In the case of Bharat Industrial Works (1997) 226 ITR 547? (MP), the question was whether 20 per cent. of the expenditure in excess of Rs.l lakh towards running and maintenance of cars can be disallowed under section 37(3A) of the Act. There it was held that the expenditure towards maintenance of car would come within the ambit of section 37(3A) of the Act. In fact the above decision‑has no relevance in the present case. In CIT v. K.N. Oil Industries (1997) 226 ITR 547 (MP), the question was whether the expenses on repairs and maintenance or cars were fully allowable under section 31 of the Act. There it was held that it was not fully allowable under section 31 of the Act. The applicability of sections 31 and 37(3A) was not considered and the above decision also is not relevant for resolving the question in controversy. The decision of the High Court of Himachal Pradesh in Mohan Meakin Breweries Ltd. v. CIT (No.l) (1979) 118 ITR 101, relied on by the Revenue also is of no avail to substantiate the case of the Revenue. That was a case where the Court had to consider whether the expenditure met towards the cost and installation charges of neon signs put up for advertising the products of the company at different places in various towns in India, including those at the dealers' premises, was an expenditure of a capital nature or a claim of the assessee under subsection (3) of section 37 of the Income‑tax Act can be allowed. Therein it was held (page 103):

"It is obvious from the provisions of subsection (3) quoted above that it contemplates an altogether separate and distinct head of deduction, namely, expenditure on advertisement. It is further clear that this deduction on account of expenditure on advertisement is admissible 'notwithstanding anything contained in subsection (1)'. The use of the non‑obstante clause in subsection (3) clearly excludes the considerations which are contemplated by subsection (1) of section 37. It, therefore, follows that if once it is found that a particular deduction can be claimed as on account of expenditure on advertisement the said deduction squarely falls within subsection (3) and that being so the question whether the said expenditure is of capital nature or of revenue nature falls wholly out of consideration. Deduction on account of‑ expenditure on advertisement is qua advertisement and not qua its revenue or capital nature. The Tribunal seems to have missed this aspect of the matter. We, therefore, find that this expenditure falling under subsection (3) of section 37 should be treated as expenditure on advertisement and deduction on that account should be given not on consideration of the question whether it is of revenue or capital nature, but on consideration of the conditions and restrictions contemplated by subsection (3) itself."

The facts of the above case do not have any similarity with the facts of the present case and the above decision also is of no avail in revising the controversy.

In CIT v. Navodaya (1997) 225 ITR 399 (Ker.) and in CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appex.), the Division Bench has not considered all the aspects of the case. It did not consider the aspect that the expenditure on repairs of cars is a separate and distinct item of expenditure covered by section 31 whereas maintenance of car is a separate and distinct item of expenditure coming within subsections (3A) and (3B) of section 37. It did not consider that all the subsections deal with certain specific items of expenditure which were not dealt with under any of the provisions of sections 30 to 36. We have carefully examined the matter in detail. As the expenditure on repairs of vehicles including motor cars are covered by section 31 of the Act which is specifically excluded from the ambit of section 31(l) of the Act, section 37(3A) which has application only in respect of the items mentioned in section 37(3B) of the Act, the non obstante clause in section 37(3A) shall not have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under sections 30 to 36 of the Act. The expenditure towards repairs and premium paid towards insurance of motor cars is deductible under section 31 of the Act and the same expenditure will not fall within the mischief of section 37(3A) of the Act. We respectfully disagree with the view taken by the Division Bench in CIT v. Navodaya (1997) 225 ITR 399 and in CIT v. Travancore Cements Ltd. (1999) 240 ITR 825 (Appex.). The correct approach was made by the Division Bench in CIT v. A.V. Thomas and Co. Ltd. (1997) 225 ITR 29 (Ker.) and CIT v. Midland Rubbers and Produce Co. Ltd. (1998) 232 ITR 530 (Ker.).

The reference is answered in favour of the assessee and against the Revenue.

A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income‑tax Appellate Tribunal, Cochin Bench, as required by law.

M.B.A./382/FCOrder accordingly.