COMMISSIONER OF Income Tax vs MIDLAND RUBBERS and PRODUCE CO. LTD.

SMT. K. K. USHA, J. :

This is a reference under s. 256 of the IT Act, 1961 by the Tribunal, Cochin Bench at the instance of Revenue arising out of the order of the Tribunal in ITA No. 737/Coch/1987, which relates to the asst. yr. 1985-86. Following is the question referred for opinion of this Court :

"Whether, on the facts and in the circumstances of the case, should not the repairs to car and jeep be included for computing the disallowance under s. 37(3A) of the IT Act, 1961 ?"

Facts of the case are as follows :

The assessee-company, had incurred certain expenditure for the repair of motor car and jeep for the asst. yr. 1985-86. In the return, the assessee computed disallowance under s. 37(3A) but claimed that no disallowance can be made on these repair charges on the ground that s. 37(3A) has no application. The ITO took the view that s. 37(3A) is applicable and rejected the claim of the assessee. The contention raised by the assessee was accepted by the CIT(A), on the appeal filed by the assessee and directed the AO to exclude the motor car and jeep repair charges from the computation made by him under s. 37(3A) of the Act. While dismissing the appeal filed by the Revenue the Tribunal upheld the view of the CIT(A).

In IT Ref. No. 74 of 1994 [reported as COMMISSIONER OF INCOME TAX Vs. A. V. THOMAS and CO. LTD., ] we had occasion to consider a similar question and we have taken the view that expenditure incurred by the assessee as repair charges of the car and the jeep would come directly under s. 31 of the IT Act, 1961, that s. 37(1) takes in cases which are not covered by ss. 30 - 36, that non obstante clause in s. 37(3A) does not have the effect of bringing the provisions contained under s. 31 also within the purview of s. 37 and therefore, any claim for deduction in respect of expenditure incurred for repair of the car and jeep s. 37(3A) has no application.

We find that the questions framed and referred are slightly confusing. We, therefore, recast the question as follows :

"1. Whether, on the facts and in the circumstances of the case, -

(i) the expenditure in respect of repairs and insurance of motor car and jeep can be included in the expenditure incurred on running and maintenance of motor cars for purpose of restriction under s. 37(3A) of the IT Act ?

(ii) The Tribunal is right in law in holding : repairs are governed by s. 31 and taxes are regulated under s. 30 such expenditure cannot be construed as running and maintenance expenditure of motor cars described under s. 37(3A) of the Act ?"

In the light of the discussion as above, we answer the question No. 1(i) in the negative against the Revenue and in favour of the assessee, question No. 1(ii) in the affirmative against the Revenue and in favour of the assessee.