Full Judgment Text
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CASE NO.:
Appeal (civil) 7486 of 2001
PETITIONER:
G.K. Choksi & Company
RESPONDENT:
Commissioner of Income Tax, Gujarat
DATE OF JUDGMENT: 27/11/2007
BENCH:
ASHOK BHAN & H.S. BEDI & V.S. SIRPURKAR
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO(S). 7486 of 2001
BHAN, J.
1. The present appeal has been directed against the
final 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").
2. The question involved in the present appeal relates
to the correct interpretation of Section 32(1)(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.
3. 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 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 15.1.1985 rejected the claim of
the assessee-appellant on the ground that the said
provision is applicable to an assessee carrying on
"business" and the same is not available to a
professional.
4. The Commissioner of Income 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. Income Tax Officer,
1981 (2) SCC 693, and allowed the claim of the appellant
with the further direction to the Income Tax Officer to
grant initial depreciation @ 40% for the building erected
by the appellant for the residential purposes of its
employees.
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5. 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 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 provision, i.e., 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.
6. 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 of
law to the jurisdictional High Court for its opinion:
"Whether, on the facts and in the
circumstances of the case, the Tribunal was
right in law in holding that the assessee
was not entitled to deduction under Section
32(1)(iv) of the Act ?"
7. 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.
8. 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 owned by the assessee and used
for the purposes of the business or profession, the
following deductions shall, subject to the
provisions of Section 34, be allowed:
(i) xxx xxxx 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
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 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
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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 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 building.
(v) xxxxxxxxxxxx
(vi) xxxxxxxxxx"
9. Shri Sameer Parekh, learned counsel appearing for
the appellant 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.
10. 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.
11. As against this Mr. V. Shekhar, learned senior
counsel appearing for the Revenue, submits that Section
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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 (1) of
Section 32 lays down general conditions or basic requirements
on fulfillment of which an assessee shall become eligible for
deduction as provided in the various clauses which follow.
That, from the scheme of the section various clauses would
operate on further specific conditions laid down in each such
individual clause(s). It is further submitted that though
Section 32(1) refers to both "business" and "profession", the
sub-sections, namely, (i) and (iv) would not be controlled by
it. That Barendra Prasad Ray’s case (supra) has no
application to the facts of the instant case. According to
the learned counsel, in the said case, this Court was dealing
with a situation arising under Section 9 of the Act which
deals with income deemed to accrue or arise in India. That
the said Section operates in an entirely different field while
Section 32 including the surrounding section and sub-sections
operate in different field. That the ratio of the said
judgment cannot be imported to the fact situation in the
present case and the High Court has rightly distinguished the
same.
12. We do not find much substance in the submissions
advanced by the learned counsel for the appellant. Section
32(1) of the Act does not help the appellant in any way to
construe the word "business" appearing in sub-section
32(1)(iv) to include "profession" as well. The legislature
intended to have different scope for business and profession
in Section 32(1). If the legislature had intended to include
"profession" in the word "business", then there was no need to
mention two different words, i.e., "business" or "profession"
in Section 32(1) of the Act.
13. Section 32(1) stipulates that on buildings,
machinery, plant or furniture which is owned by an assessee
and used for the purposes of "business or profession",
depreciation shall be available by way of deduction. Section
32(1) uses the phrase "the following deductions shall",
therefore it is apparent that the said sub-section is laying
down general conditions or basic requirements, on fulfillment
of which, an assessee shall become eligible for deductions as
provided in the various clauses which follow. The learned
counsel appearing for the Revenue has rightly contended that
from the Scheme of the Section it is discernible that various
clauses shall operate on further specific conditions laid down
in each individual clause. Clause (i) deals with case of
ships other than ships ordinarily plying on inland waters,
clause (ii) pertains to buildings, machinery, plant or
furniture, other than ships and is applicable to both business
and profession in regard to the claim for depreciation in
respect of the building , machinery, plant or furniture. In
clause (iv) the legislature has used the word "business" only.
It means that the legislature was conscious of the fact that
the business and profession are different and separate and
they cannot be used interchangeably. It is a pointer to the
fact that the Legislature under clause (iv) intended to
restrict the benefit to the assessees carrying on business
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only. In sub-clause (ii) the legislature has specifically
extended the benefit of depreciation to the assessees carrying
on "business" as well as "profession" whereas in sub-section
(iv), the legislature has restricted the benefit to the
asseessees carrying on "business" only.
14. This Court rendered the decision in Barendra Prasad
Ray’s case (supra) in the context of Section 9(1), wherein the
Court, after discussing the case laws, definitions, dictionary
meanings, concluded as under:
"The word "business" is one of wide import and it
means an activity carried on continuously and
systematically by a person by the application of his
labour or skill with a view to earning an income. We
are of the view that in the context in which the
expression "business connection" is used in s.9(1) of
the Act, there is no warrant for giving a restricted
meaning to it excluding "professional connections"
from its scope."
15. In Barendra Prasad Ray’s case (supra), this Court
was interpreting the expression "business connection" as used
in Section 9(1) of the Act and held that there was no warrant
for giving a restricted meaning to it to exclude "professional
connectionS" from its scope. Section 9(1) deals with a
different situation. It occurs in Chapter II of the Act,
while Section 32 occurs in Part D of Chapter IV of the Act.
This decision was rendered on the peculiar facts and
circumstance of the said case and has to be restricted to the
situation prevailing therein. It cannot be applied to every
case irrespective of its facts. Section 32 finds place in
Chapter IV, Part D of the Act which deals with "profits and
gains of business or professions. The wording of two
provisions, i.e., Section 9(1) and Section 32 of the Act are
quite different and the interpretation put on the words
"business connection" while interpreting Section 9(1), cannot
be applied to a fact situation under Section 32(1)(iv) to hold
that the expression "business" occurring in Section 32(1)(iv)
would include "profession" as well.
16. As already observed, Section 32(1) lays down the
general conditions or basic requirements on fulfillment of
which an assessee shall become eligible for deduction as
provided under various clauses which follow. Clauses (i),
(ii) and (iv) operate in different fields and deal with
different set of assessees for the purposes of claiming
depreciation. In our opinion Barendra Prasad Ray’s case
(supra) has no application in the present case.
17. Part D consists of Sections 28 to 43 of the Act
which deals with profits and gains of business or profession.
Though the phrase has been used in certain sections as
"business or profession", but nowhere has the phrase been used
as the "business and profession". In fact, wherever the
legislature intended that the benefit of a particular
provision should be for both business or profession, it has
used the words "business or profession" and wherever it
intended to restrict the benefit to either business or
profession, then the legislature has used the word either
"business" or "profession", meaning thereby that it intended
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to extend the benefit to either "business" or "profession",
i.e., the one would not include the other.
18. We agree with the submission made by the counsel for
the appellant that in view of the settled law, if two
interpretations are possible, then the one in favour of the
assessee should be adopted. But, we are of the view that in
the present case two interpretations are not possible as the
word "business" occurring in clause (iv) of Section 32(1), by
no stretch of imagination, can be said to include "profession"
as well. If the expression "business" is interpreted as
including within its scope "profession", it would not mean
that the lacuna has been made good by giving a wider
interpretation to the word business. There is nothing in
Section 32(1)(iv) which envisages the scope of word "business"
to include in it "profession" as well. If the expression
"business" is interpreted to include within its scope
"profession" as well, it would be doing violence to the
provisions of the Act. Such interpretation would amount to
first creating an imaginative lacuna and then filling it up,
which is not permissible in law. The contention of the
counsel for the appellant that Section 32(1)(iv) should be
given purposive interpretation to include "profession", has
thus to be rejected.
19. 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.