ORDER
Per Shr V. P. Elhence, Judicial Member – The assessed in appeal against order dated 22-3-1984 of the learned Commissioner or Income-tax (Appeals) IX, New Delhi for the assessment year 1981-82.
2. The assessed M/s. Mohan Meakin Breweries Ltd., Solan (H. P.) it is a public limited company which runs breweries, distilleries, factories of breakfast food, ice, bottles etc. The first ground relates to the alleged disallowance of Rs. 2,42,341 by way of entertainment expenses. The assessed had claimed in all Rs. 3,01,181 according to the following details :-
Particulars
Amount Rs.
1. Lunches, dinner etc. at Hotels.
68,875
2. Liquor and beer.
13,491
3. Soft drinks, tea and juices etc.
1,09,067
4. Presentations.
22,154
5. Rail and road fare.
22,560
6. Ticket for cinema shows.
346
7. Dry fruit on Diwali
4,264
8. Refreshment to companys staff and guests.
59,136
9. Misc. expenses.
1,288
Total
3,01,181
The Income-tax Officer only allowed Rs. 30,000 under section 37(2A) and disallowed the balance amount of Rs. 2,71,181. The ITOs order does not give the details of the amount of Rs. 30,000.
3. In appeal the learned Commissioner of Income-tax (Appeals) did not accept the assesseds submission that expenses incurred out of humanitarian considerations could not be termed as expenditure on the provision of hospitality. So far as the other contention raised on behalf of the assessed namely that expenses on presentation, rail and road fares, cinema tickets, dry fruit on Diwali and a part of un segregated expenses on refreshment on companys staff and guest should be treated separately and not processed u/s. 37(2A) is concerned, the learned Commissioner of Income-tax (Appeals) noticed that no details had been examined by the Income-tax Officer and therefore, it was necessary to send back the matter to him for a decision afresh.
4. Before us on behalf of the assessed, the contentions raised before the Income-tax authorities were sought to be reiterated. Additionally it was pointed out that so far as lunches, dinners at hotels, soft drinks, tea and juices etc. are concerned, the employees of the assessed would have necessarily participated and therefore, even in terms of Explanation to section 37(2A) the amount spent on the employees could not be termed entertainment expenditure and was therefore, excludible. Reliance in this connection, was placed on the order of the Appellate Tribunal for A. Y. 1982-83 in the case of Percolator India Ltd. [IT Appeal No. 435 (Delhi) of 1985 dated 31-7-1986] (to which one of us was a party), wherein an estimated allowance of 10 percent was made for employees participation. The submission made on behalf of the assessed was that in fact in the present case 50 per cent deduction should be allowed for employees participation. On the other hand, the learned Departmental Representative strongly relied upon the orders of the learned Commissioner of Income-tax (Appeals).
5. We have considered the rival submissions. In the grounds of appeal the assessed had mentioned the disallowed amount as Rs. 2,42,341 though no such figure has been mentioned in the order of the learned CIT (A). The following bifurcation is mentioned by the assessed of the amount of Rs. 2,42,341 in the grounds of appeal :
Â
Rs.
(a) Expenses incurred on food and refreshment to employees, auditors, customers, suppliers and others coming in connection with the business of the company.
2,21,857
(b) Expenses debited under the hear “Advertisement and Sales Promotion Expenses.”
20,484
Total
2,42,341
So far as the expenses allegedly incurred by the assessed on humanitarian considerations are concerned, it is now clear after insertion of Explanation to section 37(2A) that only “expenditure on food or beverages provided by the assessed to his employees in office, factory or other place of their work” can be excluded as not amounting to entertainment expenditure. No details were furnished by the assessed either before the income-tax authorities or before us. Therefore, we are of the view that the only modification which we would make in the directions made by the learned CIT (A) are that while processing the allow ability of expenses u/s. 37 in terms of Explanation to section 37(2A), the Income-tax Officer should see whether there was any employees participation in terms of the provisions referred to above and if so to exclude the expenses in relation thereto, having regard to the order of the Appellate Tribunal dated 31-7-1986 referred to above.
6. The next ground relates to the disallowance of Rs. 12,797 by way of expenditure on temples. The details of the same were as follows :
Â
Rs.
“a. Lucknow Temple Maintenance Expenses
5,006.00
b. Kasauli Construction of Mandir in village (out of other staff welfare expenses)
7,791.00
Total
12,797.00”
The Income-tax Officer had disallowed these expenses.
7. In appeal the disallowance was confirmed by the learned CIT (A) on the basis that the temples at Lucknow as well as at Kasauli being outside the assesseds business premises and the expenses being therefore, in the nature of religious donations and not business expenses, were not allowable.
8. Before us the learned counsel for the assessed drew our attention to the details of the expenses and pointed out that the temple at Lucknow was within the factory premises. He therefore, urged that at least the amount of Rs. 5,006 should be allowed. Reliance was also placed by him in this connection on the decision of the Honorable Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 134 ITR 458. On the other hand, the learned Departmental Representative relied upon the orders of the income-tax authorities as also on the decision of the Bombay High Court in the case of Kolhapur Sugar Mills Ltd. v. CIT [1979] 119 ITR 387.
9. We have considered the rival submissions as also the decisions referred to above. In the case of Kolhapur Sugar Mills Ltd. (supra), expenses incurred by the assessed for “Pooja” and for food on outside labourers on the last day of the working season of the Sugar Mill were held to be not allowable as they were dictated by consideration of commercial or business expenses. In the case of Atlas Cycle Industries Ltd. (supra) the expenses on temple constructed inside the factory premises primarily and directly for the benefit of employees was considered to be allowable. On facts it is not established that the Lucknow temple was located within the factory premises. In fact the specific finding of the ITO is that both these temples were situated outside the factory premises and did not belong to the assessed-company. As such the decision in the case of Atlas Cycle Industries Ltd. (supra) would not be attracted and there is no ground for any interference.
10. The next ground relates to rest house expenses. The assessed had claimed Rs. 5,43,803,78 u/s. 37(4) read with section 37(5) as inserted by the Finance Act, 1983 with retrospective effect from 1-4-1979.
11. In appeal the learned Commissioner of Income-tax (Appeals) allowed Rs. 27,813,61 by way of depreciation on buildings, furniture and fittings (Rs. 16,068 + Rs. 11,745.61). He also allowed another amount of Rs. 61,794.98 relating to repairs to buildings. The total amount allowed was, therefore, Rs. 89,609. However he maintained the disallowance of Rs. 4,54,195 which consisted of the following two items :
Â
Rs.
1. Salaries and wages.
77,252.11
2. Cost of provisions.
3,76,943.08
Total
4,54,195.19
12. After hearing the learned representative on both the sides we find that a similar point up before the Appellate Tribunal for the preceding assessment year 1980-81 when vide para 3 of its order dated 10-5-1985 (ITA Nos. 2582 and 2358/Delhi/83) and after following its earlier order for the A. Y. 1979-80 it was held that the expenses which fell under sections 30, 31 and 32 should not be disallowed as a part of the expenses on maintenance of the quest house and the matter was set aside to the Income-tax Officer for ascertaining whether any part of the cost of provisions fell outside the ambit of maintenance of guest house. Since the facts and the contentions raised on both the sides remain the same, we restore the matter to the Income-tax Officer for a decision afresh on this point with similar directions.
13. The next ground relates to the disallowance of Rs. 31,209 out of farm land operation expenses in Bhutan. The ITO as well as the CIT (A) made and sustained the disallowance as in the past and for the same reasons.
14. This point also arose for the preceding A. Y. 1980-81 before the Appellate Tribunal and the Appellate Tribunal vide its order dated 10-5-1985 referred to above, directed the ITO to ascertain all the facts regarding this item and to find out the nature of expenses and to deal with the matter in the light of the observations made by the Appellate Tribunal in the immediately preceding assessment year 1979-80. For the assessment year in question also we restore the matter to the ITO with similar directions.
15. The next ground relates to the rejection of the claim of deduction of the amount of sur-tax payable under the Companies (Profits) Sur-tax Act, 1964 in computing its total income. The disallowance was maintained by the learned CIT (A) on the basis of the Honorable Calcutta High Court in the case of Molins of India Ltd. v. CIT [1983] 144 ITR 317 and of the Honorable Karnataka High Court in the case of CIT v. International Instruments (P.) Ltd. [1984] 16 Taxman 282.
16. After hearing the learned representatives on both the sides and in view of the aforesaid decisions, there being no decision contrary thereto, we hold that sur-tax paid by the assessed company was not an admissible deduction.
17. The next ground relates to the disallowance of Rs. 86,250 u/s. 40A (5) representing gratuity paid to the directors. The following payments were made by the assessed-company :
Â
Rs.
(i) Shri Kapal Mohan, Managing Director
26,250
(ii) Shri P. D. Goswami, Finance Director
30,000
(iii) Sh. H. D. Deogar, Executive Director
30,000
Total
86,250
The Income-tax Officer disallowed the claim u/s. 40A (5).
18. In appeal the learned CIT (A) held that the payments were not in the nature of gratuity at or in connection with the retirement or termination of services of these directors. He held that the gift or reward paid to these 3 top executives of the assessed-company fell within the ambit of section 40A (5). The disallowance was, therefore, confirmed by him.
19. We have heard the learned representatives on both the sides. The payment made to the Managing Director was for the period 7-2-1973 to 6-2-1980 and it was included in the managerial remuneration. The other two payments to the Financial Director and the Executive Director related to the period of service prior to their appointment as whole-time directors. According to the assessed one appointment ended and another began. However the point made by the learned Departmental Representative was that in terms of Explanation 2 to section 40A (5) the payment was by way of salary plain and simple. In our view the learned Departmental Representative is right in saying so. On facts as appearing and from the record, the order of the income-tax authorities was quite just and proper and does not call for any interference.
20. The next ground relates to the assesseds investment in the shares of M/s. Maruti Ltd. The facts are that the assessed owned 1,00,000 equity shares of Maruti Ltd. whose undertaking was taken-over by the Government of India under Maruti Ltd. (Acquisition and Transfer of Undertakings) Act, 1980 with effect from 13-10-1980. According to the assessed nothing was recoverable from the new company or from the Government because the Act made a provision for the payment of Rs. 4.34 crores only for the disbursement of the claims against the company. It was also contended that the amount was provided for payment for discharging certain liabilities of the company which exceeded the amount provided for and that no provision was made for payment to share-holders for their holdings in the company. However, the ITO noticed that in their report, the auditors had mentioned at page 41 that the ultimate reliability of the investment at that stage was undeterminable. He also noticed that the proceedings before the Commissioner of Payments appointed by the Government under the said Act were also not over. He took the view that it was premature for the assessed to say that nothing would be realisable by the assessed-company. He, therefore, disallowed the assesseds claim regarding capital loss of Rs. 10,01,000. He clarified that the assessed would be entitled to claim the loss when the final position emerges out after settlement of the claims of the various liabilities for which a compensation of Rs. 4.34 crores had been paid by the Government.
21. In appeal the learned CIT (A) confirmed the order of the Income-tax Officer.
22. Before us on behalf of the assessed reliance was placed on the written submissions made before the learned CIT (A). He also referred to sections 46 and 47(2) of the Maruti Ltd. (Acquisition and Transfer of Undertakings) Act, 1980 as also on the following decisions :
(i) CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 (Guj.); and
(ii) Marybong & Kyel Tea Estates Ltd. v. CIT [1981] 129 ITR 661 (Cal.).
On the other hand, the learned Departmental Representative supported the orders of the income-tax authorities and in this connection, he referred to sections 23 and 24 of the aforesaid Act as also the decision of the Supreme Court in the case of CIT v. R. M. Amin [1977] 106 ITR 368 whereby the decision of the Honorable Gujarat High Court in CIT v. R. M. Amin [1971] 82 ITR 194 was affirmed.
23. We have considered the rival submissions as also the decisions referred to above. In the case of CIT v. R. M. Amin [1971] 82 ITR 194 (Guj.), the matter of distribution of assets to share-holders on the liquidation of a company was considered. Further question considered was whether receipt by the share-holders of more then the value of shares could be taxed as a capital gain. In the case of Vania Silk Mills (P.) Ltd. (supra) the allow ability to capital gains on insurance amounts in excess of the original cost of machinery was considered. In the case of Marybong & Kyel Tea Estates Ltd., (supra) the assessability of capital gains on the amount paid by insurance company in excess of balance charged was considered. Though the propositions laid down in the aforesaid decisions are not under dispute, we have to see whether on facts, the assessed could say that there was an ascertained loss. The scheme of the Maruti Ltd. (Acquisition and Transfer of Undertakings) Act, 1980 clearly shown that if out of the moneys paid on the Commissioner (Payments) in relation to the undertakings of the company, there is a balance left after meeting the liabilities, the Commissioner shall disburse such balance to the company (section 23). Section 24 further provides that undisbursed or unclaimed amount is to be deposited to the general revenue account. It is the undertaking of the Maruti Ltd. which has been acquired. The finding of the ITO was that as found by the auditors of the assessed-company, the ultimate reliability of the investment was not determinable and that the proceedings before the Commissioner of Payments appointed by the Government under the said Act, were also not over. This being the factual position, the income-tax authorities were quite justified in taking the view that the claim of loss of the assessed was pre-mature. The claims of various persons were yet to be settled and as long as the company itself did not indicate that there was nothing left after settling of the claims, it could not be said that the shares had become worthless. We, therefore, maintain the orders of the income-tax authorities on this point.
24. The next ground relates to the charging of interest u/s. 139(8). The grievance of the assessed in that regard was that the ITO should have exercised his desecration suo motu under Rule 117A of the Income-tax Rules, 1962 for reducing/waiving interest. The learned CIT (A) held that it was for the assessed to moves the ITO in that regard. He had, therefore, directed the ITO to examine the matter if and when the assessed moved him under the aforesaid Rule and produced evidence to his satisfaction as mentioned in clause (v) of Rule 117A.
25. After hearing the learned representatives on both the sides, we are of the view that the direction given by the learned CIT (A) was eminently just and that it does not call for any interference.
26. The next ground relates to the charge of interest u/s. 215. This claim is similar to the claim u/s. 139(8) except for the fact that the relevant Rule applicable was Rule 40 instead of Rule 117A. For the same reasons, we uphold the similar direction given by the learned CIT (A) on this point.
27. The last ground relates to the charge of interest u/s. 216. So far as this ground is concerned, we find from the order of the learned CIT (A) that he had accepted the assesseds claim and had directed the ITO to recompute the deficiencies and the period for which interest was to be charged. In this connection, ground No. 16 taken before the learned CIT (A) as at Annexure C is relevant. Since the learned Commissioner of Income-tax (Appeals) has already directed the Income-tax Officer suitably, no interference is called for in this ground.
28. In the result the appeal is partly allowed.
Per Shri Anand Prakash, Accountant Member – I have had the benefit of going through the order written by my learned Brother, the Honorable Judicial Member. I concur with all his findings except that recorded in para 12 of his order, wherein he directs that expenses, which fall under sections 30, 31 and 32 should not be disallowed, while giving effect to section 37(4) of the Act in relation to the guest house maintained by the assessed. Section 37(4), so far as it is relevant for our purpose, reads as below :
“Notwithstanding anything contained in sub-section (1) or sub section (3),-
(i) no allowance shall be made in respect of my expenditure incurred by the assessed… on the maintenance of any residential accommodation in the nature of a 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.”
Clause (ii) of the Explanation may also be noted :
“For the purpose of this sub-section :
The expenditure incurred on the maintenance of a guest house shall, in a case, where the residential accommodation has been hired by the assessed, include also the rent paid in respect of such accommodation.”
The argument in favor of the viewpoint adopted by my Ld. Brother, following earlier orders of the Tribunal, is that the nonobstante clause with which sub-section (4) of section 37 begins makes it override the provisions of sub-sections (1) and (3) of section 37 only, and that sub-section (4) does not override the provisions of sections 30,31 and 32 of the Act, and so the said sections will have their normal operations. Section 30 provides that rent, rates, taxes, repairs and insurance for premises, used for the purpose of business, should be allowed. Section 31 directs allowance of expenditure on repairs and insurance of machinery, plant or furniture used for the purpose of business. Section 32 directs that depreciation be allowed to the assessed in respect of buildings, plant, machinery or furniture owned by the assessed and used for the purpose of the business. Section 37 reads, inter alia, as below :
“Any expenditure (not being of the nature described in sections 30 to 36, and not being in the nature of capital expenditure or personal expenses of the assessed), laid out or expended wholly and exclusively for the purposes of the business shall be allowed….”
It is clear from the aforesaid wordings that s. 37 is a residuary section and takes care of only such expenses as are not of the nature described in sections 30 to 36. In other words, the following expenses shall be allowed, not under section 37(1), but under section enumerated against them :
(1) Rent, rates taxes and repairs and insurance for the purposes of business. … S. 30 (2) Repairs and insurance of machinery, plant or furniture. … S. 31 (3) Depreciation on buildings, machineries, plant or furniture. … S. 32
It has to presumed that this long-standing provision of law was within the knowledge of the Legislature, when it placed sub-section (4) of section 37 on the statute book w.e.f. 1-4-1971. In other words it knew that the allowance of rent, rates, taxes, insurance of the building used for the purpose of business, and depreciation in respect of buildings, plant and machinery and furniture owned by the assessed and used for the purpose of the business are not allowable u/s 37(1). Yet, wordings were incorporated in sub-section (4) of sec. 37 to the effect that :
(i) depreciation in respect of building used as a guest house shall not be allowed :
(ii) depreciation of any assets in a guest house shall not be allowed :
(iii) rent paid in respect of a hired guest house shall not be allowed; and
(iv) any other expenses on the maintenance of a guest house, (including those of insurance of the assets in a guest house or in relation to the guest house), shall not be allowed.
Prima facie, by using the non obstante clause, in the beginning of section 37(4), the above provisions of law, namely, sections 30, 31 and 32 were not being over-ridden. Only provisions of section 37(1) were being over-ridden, which pertained to the residuary category. The meaning to be ascribed to the non obstante clause is, therefore, limited, namely that any of the expenses falling in the residuary category will not be allowed, if they related to a guest house. As, the non obstante clause did not take care of the expenses specifically covered by sections 30, 31 and 32, the remaining part of sub-section (4) was so worked that it precluded expenses falling within sections 30, 31 and 32 also, if they were relatable to a guest house. There is specific prohibition for allowance of depreciation and for rent of a hired guest house. Other expenses ascribable to the maintenance of a guest house have also been specifically prohibited.
2. The position, therefore, is that we are faced with two provisions of law, sections 30, 31 and 32, on the one hand, and section 37(4) on the other, which cannot be simultaneously given effect to, for they are in conflict with each other. How to interpret them, then ? The following principle of interpretation of statutes have to be borne in mind :
(i) That so far as possible the various provisions of the Act should be harmonized.
(ii) Such an interpretation which will make a certain provision of law redundant, otiose and non-operative must be avoided, and (iii) the special law should prevail over the general law-Generally special bus non derogant.
If the interpretation preferred by my Ld. Brother is adopted, it appears to me that a very substantial part of section 37(4) is made redundant and non-operative. Depreciation, though not allowable u/s 37(4) (ii), would still be allowed u/s 32; rent of the hired guest house, though specifically prohibited by sec. 37(4) (i) read with Explanation (ii) thereof shall still be allowed u/s 30. The above effect can be straightaway avoided, if it is remembered that section 37(4) is a special provision relating to guest houses, and sections 30, 31 and 32 are general provisions relating to any building, plant, machinery or furniture used for the purpose of business. Therefore, when there be conflict between them, the special provisions must prevail over the general provisions. Thus interpreted, a harmonious construction of sections 30, 31, 32, 37(1) and 37(4) will emerge. I, therefore, hold that effect cannot be given to sections 30, 31 and 32 in the face of sec. 37(4), following the principle of generalia specialibus non derogant. Section 37(4) being the special provision relating to guest houses must prevail over the provisions of sections 30, 31 and 32, which are general provisions.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
Consequent upon the difference of opinion, the point of difference is stated as follows to enable the Honorable President to refer the same to a Third Member in terms of section 255(4) for decision :
“Whether the Commissioner of Income-tax (Appeals) was justified in rejecting the appellants claim for deduction of Rest House Expenses by invoking the provisions of section 37(4) of the Income-tax Act, 1961 ?”
THIRD MEMBER ORDER
Per Shri Ch. G. Krishnamurthy, President – This matter has come to me as and by way of a Third Member to express my opinion on the difference of opinion, that arose between the learned Members of the Tribunal of Delhi Bench E, who heard this appeal originally. The difference of opinion referred to me is :
“Whether the Commissioner of Income-tax (Appeals) was justified in rejecting the appellants claim for deduction of Rest House Expenses by invoking the provisions of section 37(4) of the Income-tax Act, 1961 ?”
2. There were several points that came up for consideration before that Bench, which included, inter alia, a point relating to the allowance of Rest House expenses. The assessed-company claimed Rs. 5,43,803 as Rest House expenses u/s 37(4) read with section 37(5) as inserted by the Finance Act, 1983 with retrospective effect from 1-4-1979. In appeal, the learned Commissioner (A) allowed Rs. 27,813 by way of depreciation on buildings, furniture and fittings and another sum of Rs. 61,794 on account of repairs to buildings. Thus a total amount of Rs. 89,609 was allowed and the balance of Rs. 4,54,195 was disallowed, which consisted of salaries and wages Rs. 77,252 and cost of provisions Rs. 3,76,943.
3. The contention raised before the Bench was that a similar point had come up for consideration before the Appellate Tribunal for the preceding assessment year 1980-81, which following a still earlier order relating to the assessment year 1979-80 held that the expenses, which fell under sections 30, 31 and 32 should not be disallowed as part of the expenses on the maintenance of the guest house but at the same time the matter was set aside to the Income-tax Officer for ascertaining whether any part of the cost of provisions fell outside the ambit of expenses on maintenance of guest house expenses. Following this order of the Tribunal the learned Judicial Member held that since the facts and the contentions raised on both the sides remain the same, the matter should be restored to the Income-tax Officer for a decision afresh on this point with similar directions. By this the learned Judicial Member did not express any view on the question of allow ability of any expenditure except that he stated in his own words what the earlier Bench of Tribunal had said on this point.
4. But the learned Accountant Member understood the order of the learned Judicial Member as directing to allow the expenses falling under sections 30, 31 and 32 while giving effect to section 37(4) of the Income-tax Act in relation to the guest houses maintained by the assessed. I think it would be better for me to record what the learned Judicial Member had said and what the learned Accountant Member had said on this point in their own words. The learned Judicial Member observed in para 12 of his order :
“12. After hearing the learned representative on both the side we find that a similar point came up before the Appellate Tribunal for the preceding year 1980-81 when vide para 3 of its order dated 10-5-1985 (ITA Nos. 2582 and 2358/Delhi/83) and after following its earlier order for the A. Y. 1979-80 it was held that the expenses which fell under sections 30, 31 and 32 should not be disallowed as a part of the expenses on maintenance of the guest house and the matter was set aside to the Income-tax Officer for ascertaining whether any part of the cost of provisions fell outside the ambit of maintenance of guest house. Since the facts and the contentions raised on both the sides remain the same, we restore the matter to the Income-tax Officer for a decision afresh on this point with similar directions.”
The learned Accountant Member recorded his reservation to agree with this finding in the following words;
“I have had the benefit of going through the order written by my learned Brother, the Honorable Judicial Member. I concur with all his findings except that recorded in para 12 of his order, wherein he directs that expenses, which fall under sections 30, 31 and 32 should not be disallowed, while giving effect to section 37(4) of the Act in relation to the guest house maintained by the assessed.”
Understanding the order of the learned Judicial Member, thus the learned Accountant Member went on to discuss as how there would be a conflict between the provisions of section 37(4) and sections 30, 31 and 32 of the Act and after explaining in great detail the seeming contradictions, the learned Accountant Member eventually held :
“Therefore, when there be conflict between them, the special provisions must prevail over the general provisions. Thus interpreted, a harmonious construction of sections 30, 31 and 32, 37(1) and 37(4) will emerge. I, therefore, hold that effect cannot be given to sections 30, 31 and 32 in the face of sec. 37(4), following the principle of generalia specialibus non derogant. Section 37(4) being the special provision relating to guest houses must prevail over the provisions of section 30, 31 and 32, which are general provisions.”
5. On carefully going through the order of both the learned Members, it transpired that in so far as the allowance of expenditure under sections 30, 31 and 32 are concerned, there could not be any difference of opinion except a misunderstanding of the order proposed by the learned Judicial Member. The amount of expenses to the allowance of which objection was taken to by the learned Accountant Member as falling within the scope of sections 30, 31 and 32 amounted to only Rs. 89,609 as noted above in the earlier part of this opinion. This amount was allowed by the Commissioner (A), against which the department filed an appeal before the Tribunal. The Tribunal by its order in ITA No. 2959 (Delhi) of 1984 disagreed with the view of the Commissioner (A), cancelled his order on that point and restored that of the Income-tax Officer. Thus the disallowance made by the Income-tax Officer was upheld. That point having been decided in favor of the Revenue by the Tribunal, that point could not have been agitated by the assessed in its appeal. The learned Judicial Member referred only to the proceedings before the Commissioner (A) but not to the subsequent proceedings before the Tribunal. But he referred to the order passed by the Tribunal in the earlier year 1980-81 where also the Tribunal had disagreed with the assesseds contention that the expenses, which come under sections 30, 31 and 32 should not be disallowed as part of the maintenance of the guest house expenses. In that year also the disallowance of these expenses was upheld by the Tribunal. Further in the assessment year 1980-81, the Tribunal observed that for the disallowance of the balance expenses, the qualification of the expenses on provisions as falling outside the ambit of maintenance of guest house must be made and then the disallowance proposed. The observations made by the Tribunal in this respect are very relevant to understand the controversy. I therefore reproduce them here :
“3. The next ground in the Departmental appeal is against the deletion of the addition of Rs. 5,30,000 made under the head rest house expenses. These expenses are included in the staff welfare expenses and include repairs to the buildings used an guest houses, salaries and wages, cost of provision and depreciation. A part of the expenses relating to cost of provisions were debited to entertainment expenses. In fact the CIT (Appeals) has mentioned the figure of Rs. 5,30,000 under this head. The CIT (Appeals) while deleting the above addition had relied on the earlier order of the CIT (Appeals) and the order of the Tribunal for some earlier year where similar claim had been allowed. We had the occasion to consider such matter in connection with the appeals relating to the assessment years 1979-80 and we had held that the earlier finding about as to what was a guest house could not hole good considering the amended provisions of law. We had also rejected the other plea taken by the assessed that the expenses which come under sections 30, 31 and 32 should not be disallowed as a part of maintenance of the guest houses. We have upheld the disallowance of these expenses in principle but on the qualification of the disallowance, we have sent the matter to the Income-tax Officer directing him to ascertain whether any part of cost of provisions would fall out of the ambit of maintenance of guest houses. The facts of the case and the legal provisions continue to be the same and we, therefore, give similar directions in this year as well.”
It will be seen from this order of the Tribunal that the expenses relatable to sections 30, 31 and 32 were not allowed by the Bench keeping in view the amended provisions of law but remitted the case back to the Income-tax Officer for quantification of those expenses incurred on the cost if provisions, which might fall out of the ambit of the maintenance of guest house expenses meaning thereby that if there are any expenses incurred on provisions otherwise than on maintenance of guest houses, those expenses could be allowed because the claim made was a consolidated claim could be allowed because the claim made was a consolidated claim which included the expenses incurred on staff welfare and maintenance of guest houses. So the anxiety of the Tribunal was to separate the expenses incurred on the staff welfare from the maintenance of guest houses expenses and direct that portion to be allowed as not covered by section 37(4). Since separation became necessary, the matter was remanded to the Income-tax Officer to find out the extent of such expenses. It was following this direction that the learned Judicial Member observed in his order as quoted, in para 12 above, and gave similar directions for this year also by categorically maintaining that the ascertainment of the expenditure on cost of provisions should be to find out as to whether they fall within or out of the ambit of maintenance of guest house. He did not give any direction that the expenditure relatable to sections 30, 31 and 32 should be allowed. This point had become final by the order of the Tribunal referred to above whereby disallowance of Rs. 89,609 made by the Income-tax Officer was restored. There could not therefore be any difference of opinion between the two Members on this issue except a misunderstanding. The learned Accountant Member thus erroneously under stood the order of the learned Judicial Member as giving a direction to allow the expenses falling under sections 30, 31 and 32 by pointing out that such a direction would conflict directly with the provisions of section 37(4). Since no such direction was given, there could not be any difference of opinion on this point at all. Even though the point of difference of opinion was couched in a broad language but by going through the orders proposed by my learned Brothers I find that the difference of opinion arose only on account of and was confined to expenses relatable to sections 30, 31 and 32 and there does not appear to be any discordant note voiced by the learned Accountant Member in so far as the direction given to the Income-tax Officer to ascertain the expenditure on cost of provisions falling outside the ambit of maintenance of guest house. Therefore the observations of the learned Accountant Member that effect could not be given to sections 30, 31 and 32 in the face of section 37(4) following the principle of generalia specialibus non derogant does not arise. As there was no difference of opinion on the other direction given, I must hold that the direction given by the learned Judicial Member following the order of the Tribunal for the earlier year holds good, survives and must be given effect to. By a careful reading of the orders of the learned Judicial Member and learned Accountant Member, I conclude that both of them have agreed that expenses relatable to sections 30, 31 and 32 should not be allowed in the face of section 37(4) for different reasons. While the learned Judicial Member followed the earlier order of the Tribunal, the learned Accountant Member has given his own reasons which happen to tally with the reasons adduced by the earlier Benches of the Tribunal on this point. There is thus a concurrence on this aspect rather than a difference of opinion.
6. The matter will now go before the regular Bench for the disposal of the appeal in accordance with majority opinion.