1. The Income-tax Appellate Tribunal has referred the following question of law under Section 256(2) of the Income-tax Act, 1961 [for short the Act'] at the instance of the revenue for the opinion of this Court:-
Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law in holding that the expenses of repairs and insurance on running and maintenance of cars were not covered by the provisions of Section 37(3A) of the I.T. Act and therefore, not includible for the purpose of disallowance under Section 37(3A)?
2. The assessment years involved are from 1984-85 to 1986-87.
3. The assessee claimed deductions from expenditure under the head repairs and insurance under Section 31 of the Act. However, the assessing officer included the expenditure incurred towards repairs and insurance and allowed the benefits of 20 per cent deduction under the heading expenditure on running and maintenance of motor cars. Aggrieved by the same, the assessee preferred an appeal. The Appellate Authority held that the assessing officer was not justified in not allowing deduction under Section 31 of the Act and the said item does riot fall under Section 37(3A). Aggrieved by the same, revenue preferred a second appeal to the Tribunal. The Tribunal has affirmed the order of the Appellate Authority. It held that Sections 30 and 31 deal with repairs of car, insurance, etc,, and they are separately dealt with under those provisions, they will not come under Section 37(3A) of the Act. Therefore, it was held that, the inclusion is not justified and accordingly directed deletion of the said addition. At the instance of the revenue, the Tribunal has referred the aforesaid question of law for opinion.
4. The contention of the revenue is, the expenditure incurred towards repairs and maintenance of cars and payment of premium for the insurance, are covered by the provisions of Section 37(3A) of the Act and therefore, not deductible for the purpose of disallowance. We do not find any merit in the said submission.
5. Section 31 of the Act, which is applicable to the case on hand, reads as under:
31. 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-
(i) the amount paid on account of current repairs thereto;
(ii) the amount of any premium of paid in respect of insurance against risk of damage- or destruction thereof.
(Explanation,- for the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of Capital expenditure.)
Section 37(3A) on which reliance is placed by the assessee reads as under:-
(3-A) Notwithstanding anything contained in Sub-section (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 Sub-section (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.
Section 43 defines certain terms relevant to income from profits and gains of business or profession. Sub-clause (3) of Sub-section (1) of Section 43 defines plant as under: -
'Plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock or buildings or furniture and fittings.
6. These provisions were the subject matter of interpretation by the various High Courts.
7. The Calcutta High Court in the case of Commissioner of Income Tax v. Tungabhadra Industries Limited : [1994]207ITR553(Cal) has held that, Section 37(3A) of the Act inter alia provides that, notwithstanding anything contained in Sub-section (1), 20 per cent of any expenditure in excess of Rupees one Lakh incurred by an assessee in respect; of one or more of the items specified in Sub-section (3B) shall not be allowed as deduction in computing the business income. Sub-section (3B) in sub-clause (ii) specifies one of such expenditure as running and maintenance of aircraft, and motor cars. The deduction in respect of the expenditure 'incurred 011 repairs and insurance of a motor car which is a plant as defined hi Section 43(3) of the Act is allowed under Section 31 of the Act and not under Section 37. The expenditure in respect of which Sub-section (3A) could be attracted is only which falls under Section 37 and not under-Section 31. Section 37(1) deals with only such expenditure which does not fall within Sections 30 to 36 of the Act. Accordingly, the expenditure incurred on repairs and insurance of motor cars cannot be considered for disallowance under Sub-section (3A) of Section 37 of the Act.
8. In the case of Commissioner of Income Tax v. A.V. Thomas and Company Limited : [1997]225ITR29(Ker) , the Kerala High Court has held that, in view of the definition of the term 'plant' under Section 43(3), a car is also a plant. Therefore, the amount paid for repairs and towards insurance policy for car could be claimed as deduction. A reading of Section 37(1) would make it clear that the section was intended to take in expenditure which was not covered by Sections 30 to 36. The provisions contained in Sub-section (3A) would apply only to those items of expenditure which were not covered by Sections 30 to 36, but were covered by Section 37(1). The non-obstinate clause in Sub-section (3A) relates only to the computation of the allowance referred in Section 37(1) in respect of expenditure covered by Section 37(1). A reference to the provisions in Sub-section (3B) would make the above position further clear. The expenditure covered by Section 31 relates to repairs and. premium paid in respect, of insurance of cars, whereas what was contemplated under Sub-section (3B) is expenditure incurred on running and maintenance of motor cars which is entirely different.
9. Therefore, the law on the point is well settled. Section 37 is a residuary provision. It. provides for deduction of expenditure wholly and exclusively laid out or expended for (he purposes of the business where such expenditure is not expressly covered by any other specific provision of the Act. Section 37(1) deals with only such expenditure which does not fall within Sections 30 to 36 of the Act. The expenditure in respect of which Sub-section (3A) could he attracted is only which falls under Section 37 and not under Section 31. Car is a vehicle. It is a 'plant', in view of the inclusive definition contained in sub-clause (3) of Sub-section (1) of Section 43 of the Act. Section 31 of the Act, specifically deals with repairs and insurance of machinery and plant and furniture. Thus the residuary provision 37 is excluded. The deduction in respect of the expenditure incurred on repairs and insurance of a motor car is allowed under Section 31 of the Act and riot under Section 37. The expenditure covered by Section 31 relates to repairs and premium paid in respect of insurance of cars, whereas what was contemplated under Section 37(3B) is expenditure incurred on running and maintenance of motor cars which is entirely different Therefore, the Tribunal was right in holding that Section 37(3A) had no application in the case of expenditure incurred for repairing car and the premium paid for the insurance.
10. In that view of the matter, the aforesaid question is to be answered in the affirmative, against, the revenue and in favour of the assessee. In terms stated above this reference is answered. However, no order is made as to costs.