& Company Vs. Commissioner of Income Tax, Gujarat  Insc 1181 (27 November 2007)
Bhan & H.S. Bedi & V.S. Sirpurkar
APPEAL NO(S). 7486 of 2001 BHAN, J.
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
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.
brief facts are as under:
(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.
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.
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.
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:
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 ?"
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
relevant provisions of Section 32 of the Act, as they existed at the relevant
time, are reproduced below:
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:
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:
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;
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 assessee after the 28th day of February, 1975, and is used
otherwise than in a business of running it on hire for tourists;
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.
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;
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.
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.
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
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 (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.
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.
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
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.
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 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.
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:
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."
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.
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.
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.
Part D consists of Sections 28 to 43 of the Act which deals with profits and
gains of business or profession.
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 to extend the benefit to either "business"
or "profession", i.e., the one would not include the other.
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.
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.