Century Spg. and Mfg. Co. Ltd. vs Commissioner of Income Tax

T.D. Sugla, J.—In this reference, at the instance of the assessee, relating to the assessment year 1972-73, the Tribunal has referred to this Court the following question of law for opinion u/s 256(1) of the income tax Act, 1961 (''the Act''): Whether, on the facts and in the circumstances of the case, the assessee in the matter of computation of capital for the purposes of deduction u/s 80J of the income tax Act, 1961 read with rule 19A of the income tax Rules, 1962 for the accounting period relevant to the assessment year 1972-73 is entitled to include therein the loans taken by it from the banks and its unsecured borrowings from various persons?

The counsels are agreed that, in view of the Supreme Court decision in the case of Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, , the question is required to be answered in the negative and in favour of the revenue. The question is so answered.

It is pertinent to mention that by our order of this date on the Notice of Motion No. 833 of 1977 in this reference, we have allowed the assessee to raise the following two additional questions of law:

Whether, on the facts and in the circumstances of the case, the sum of Rs. 21,225 being 25 per cent of the expenses incurred for advertisement in souvenirs has been rightly disallowed?

Whether, on the facts and in the circumstances of the case, the claim of the applicant for depreciation amount of Rs. 6,875 on the house at Lonavala has been rightly disallowed u/s 37 on the ground that it is as a guest house?

It is brought to our notice by Mr. Mehta, the learned counsel for the assessee, that the Board by its Circular No. 200, dated 28-6-1976 (see Taxmann''s Direct Taxes Circulars, Vol. 3, 1991 edn., p. 560), clarified that no distinction need be drawn between expenditure on advertisements in Souvenirs and other types of advertisements. It was also clarified that the position would remain so even if the advertisements were released more than once in a year published by the same organisation. Dr. Balsubramanian makes no submission in view of the circular cited except that the advertisements in the Souvenirs did not really serve the assessee''s business purpose. Be that as it may, the circulars of the Board are binding on the income tax authorities in view of section 119 of the Act. That being so, we have to answer the additional question No. 1 in the negative and in favour of the assessee.

As regards the second additional question, Mr. Mehta invited our attention to our Court''s judgment in the case of Commissioner of Income Tax Vs. Chase Bright Steel Ltd. (No. 1), , to which one of us (Sugla J.) was a party. It was held in that case that sub-section (4) of section 37 of the Act no doubt was a non obstante clause but it was non obstante vis-a-vis sub-section (1) and sub-section (3) of section 37 only. That being so, if the expenditure or allowance was allowable under other sections of the Act, the allowance could not be withdrawn or denied to the assessee because of the prohibitory provisions in section 37(4). On going through the decision, we find that the submission is correct. Accordingly, we hold that the assessee was entitled to depreciation in respect of its property. The second additional question is, therefore, answered in the negative and in favour of the assessee. No order as to costs.