IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 194 of 1986 For Approval and Signature: Hon'ble MR.JUSTICE A.R.DAVE Sd/- and Hon'ble MR.JUSTICE D.A.MEHTA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- M/s.G. K. CHOKSI & CO. Versus COMMISSIONER OF INCOME-TAX -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 194 of 1986 MR RK PATEL for Applicant. MR AKIL QURESHI FOR MR MANISH R BHATT for Respondent. -------------------------------------------------------------- CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE D.A.MEHTA Date of decision:16/08/2001 JUDGEMENT (Per : MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has referred the following question under section 256(1) of the Income Tax Act,1961 (hereinafter referred to as 'the Act'). "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 u/s.32(1)(iv) of the Act?" 2 The assessee is a firm of Chartered Accountants having its offices at Ahmedabad, Petlad and Nadiad. The assessment year is 1984-85 and the relevant accounting period is financial year ending on 31/3/1984. The assessee made a claim in respect of initial depreciation under section 32(1)(iv) of the Act on the cost of building erected during the year at Petlad. The said claim was negatived by the Income Tax Officer as according to him the said provision was meant to apply only in case of assessees who carried on business and not in the case of assessees who are involved in 'profession'. The assessee challenged the assessment order and the C.I.T.(Appeals) relying upon the decision of Supreme Court in the case of Barendra Prasad Ray and others Vs.Income Tax Officer, 129 I.T.R.295 accepted the claim of the assessee and directed the Income Tax Officer to grant initial depreciation at 40% in respect of building erected by the assessee. 3 The revenue went in appeal before the Tribunal and the Tribunal came to the conclusion that the assessee was not entitled to the relief claimed by it. According to the Tribunal the decision of the Supreme Court in the case of Barendra Prasad Ray (supra) was rendered on the particular facts of the case and it was restricted to the situation prevailing therein. It was further observed by the Tribunal that the said decision of the Supreme Court was not meant to be applied to every case irrespective of the facts. The Tribunal also took note of the difference between provisions of section 32(1) of the Act and section 32(1)(iv) of the Act and held that wherever legislature intended to give particular relief to an assessee carrying on 'profession' it was specifically provided in the statute and where the scope of the deduction was to be restricted to 'business' only the word 'profession' was omitted. 4 Mr.R.K.Patel, learned Advocate assailed the order of the Tribunal by referring to the opening portion of section 32(1) of the Act, wherein the legislature has specifically used the expression 'business or profession' and contended that sub-clause (iv) was to be governed by the opening portion of the section and further that it was not necessary for the legislature to repeat both the words in each and every clause, the legislature having used both the words in the beginning of the section. It was further contended that the definition of both the terms viz. 'business' in section 2(13) of the Act and 'profession' in section 2(36) of the Act are inclusive definition, that opening portion of section 2 which deals with definitions reads "in this Act, unless the context otherwise requires, -" and hence according to him the terms will have to be read as interchangeable or at least one term carrying within its fold other term also if the context so required. 5 Thereafter, our attention was drawn to Circular No.202 dated 5/7/1976 issued by the Central Board of Direct Taxes by way of Explanatory Note on provisions relating to Direct Taxes as amended by the Finance Act,1976, to point out that the said circular while dealing with the amendment in section 32(1)(iv) of the Act has used the word 'Tax Payer' in para 21.1 of the said circular. Thus according to the Counsel for the assessee legislative intent was very clear in as much as the term 'business' used in section 32(1)(iv) of the Act also included 'profession'; that the assessee should be held to be entitled to the relief accordingly. 6 Mr.Patel further referred to Supreme Court decision in the case of C.I.T. vs. J.H.GOTLA, 156 I.T.R.323 and urged that where the plain literal interpretation of statutory provision produces a manifestly unjust result it was open to the Court to modify language so as to achieve the intention of the legislature and produce a rational result. He further relied on another Apex Court decision in the case of C.I.T. vs. J.K.HOSIERY FACTORY, 159 I.T.R.85 and submitted that where two interpretations are possible the Court should adopt an interpretation which is favourable to an assessee bearing in mind that a taxing statute is being construed. 7. Mr.Akil Qureshi, learned Counsel for the Revenue in support of the Tribunal's order contended that the definition of both the terms 'business' and 'profession' though worded to be inclusive have to be given their independent meanings and eventhough the term 'business' is very wide, the same has to be read as excluding 'profession' in light of the separate definitions. Referring to the provision of section 32 it was pointed out that various clauses show that the legislature intended the application of only certain clauses to both 'business' and 'profession' while some of the clauses were applicable only to 'business'. It was pointed out that clause (i) referred to a case of ships, clause (ii) referred to a case of buildings, machinery, plant or furniture, clause (iia) referred to new machinery or plant installed after the specified date, clause (iii) referred again to building, machinery, plant or furniture which is sold, discarded etc., and in none of the aforesaid clauses is it specified as to whether it is applicable to 'business' or 'profession' and hence what is stated in sub-section (1) of section 32 will be applicable i.e. the relief specified in each of the clauses would be available either to a 'business' or 'profession' as the case may be on the requisite conditions being fulfilled. Mr.Qureshi pointed out that on the other hand on reading clause (iv) it is found that only word 'business' is used; similarly in clause (v) it is the case of new building owned by an Indian company and used as a hotel, which by its very nature would not be applicable in the case of 'professional'; similarly clause (vi) is a case of 'new ship' or 'new aricraft' and used for the purpose of business of operation of ships or aircraft, or case of new machinery or plant installed after the specified date and used for various businesses specified therein, and thus the legislative intent, it was submitted, was clear that these clauses would not apply to 'profession' by the very nature of activities specified in those clauses. 8. Our attention was drawn to section 32(1A) of the Act to point out that when legislature envisages that the provision should apply to both 'business' and 'profession'it was specific; where it wanted to segregate. Legislature had specifically used one or other term in the mentioned clause. 9. Referring to part 'D' which deals with Profits and Gains of Business or Profession, our attention was drawn to section 28 which specifies incomes falling under the head profits and gains of business or profession. Section 29 lays down as to how the income referred to in section 28 shall be computed in accordance with the provisions as contained in sections 30 and 43A. It was next pointed out that sections 30 and 31 of the Act referred to both 'business' and 'profession' while sections 32A, 33, 33A and 33B of the Act are applicable only in case of businesses. Thereafter, referring to provision of section 38 of the Act, it was pointed out that sub-section (1) deals with the situation which was applicable in both the cases viz. for 'business' or 'profession'; referring to sub-section (2) of section 38 it was pointed out that the said provision would apply to both 'business' and 'profession' but as can be seen from the language used therein only those clauses of section 32(1) of the Act were mentioned which deal with both 'business' or 'profession' and clauses (iv), (v) and (vi) of section 32(1) were absent indicating that the legislature was aware of the situation that the said three clauses apply only in case of 'business' and if the legislative intent was clear it was not open to the Court to take a different view of the matter. 10. Mr.Qureshi further submitted that both the terms had separate meanings assigned to them in the definition section and while computing income under the head profits and gains of business or profession the scheme of the Act envisages that a particular provision would apply to one or the other while another provision would apply to both. It was further submitted that if section 32(1)(iv) of the Act could operate independently of the opening portion of section 32(1) it was not necessary to import word 'profession' into the said clause as there was no warrant in statute for doing so. 11. Referring to the Supreme Court decision in the case of Barendra Prasad Ray (supra) it was pointed out that the Supreme Court was dealing with a situation arising under section 9 of the Act which operated in entirely different field, while section 32 had a surrounding set of sections, sub-sections and clauses which would enable one to arrive at an interpretation that the term 'business' did not include within its sweep the term 'profession'. That the Supreme Court in the aforesaid case was called upon to interpret the term 'business connection' which is different and distinct from the term 'business' and hence, the said decision cannot help the case of the assessee. 12. Mr.Qureshi, learned Advocate referred to a case of C.I.T. vs. Lallubhai Nagardas & Sons, 204 I.T.R.93 (Bom.), wherein the question was whether Stock Brooking was a profession. Relying upon the same it was urged that when the two terms have been given different meanings which are to the exclusion of one another it would not be possible to adopt the meaning of one as including the other. Relying upon the case of Modipon Ltd. vs. C.I.T. 247 I.T.R.40 (Delhi), it was urged that the Court while interpreting taxing statute should adopt strict interpretation, and further that it was not open to the Court to read more than what was written in the provision. For the said purpose reliance was placed on the Supreme Court decision in the case of Controller of Estate Duty vs. Kantilal Trikamlal, 105 ITR 92 (at page 97 of the said report). 13. Definition or interpretation clause which defines the meaning of a word should not be construed as taking away its ordinary meaning. Further, such a clause should be so interpreted as not to destroy the basic concept or essential meaning of the expression defined, unless there are compelling words to the contrary. Words used in the sections of the Act are presumed to have been used correctly and exactly as defined in the Act, and it is for those who assert the contrary to show that there is something repugnant in the subject or context. Words which are not specifically defined must be taken in their legal sense or their dictionary meaning or their popular or commercial sense as distinct from their scientific or technical meaning, unless a contrary intention appears or their meaning may depend upon the context in which they are used. The same word occurring more than once in the Act should generally be given the same meaning, but the context may indicate the contrary legislative intention. This is the essence of the rules of interpretation in relation to definition clause in a statute. 14. Testing the case of the assessee at the anvil of the aforesaid rules of statutory interpretation we may now examine the contention canvassed before us. Mr.Patel for the assessee very emphatically and repeatedly stressed that the interpretation that should be put on clause (iv) of sub-section (1) of section 32 of the Act should not deprive an assessee who is engaged in a profession from the relief which the legislature has provided for in the said provision. That the definition of terms 'business' and 'profession' are not restrictive and the Court should not read in that context. It was urged that if a restrictive meaning is read into term 'business' in clause (iv) of section 32(1) of the Act, it would result in unjust discrimination in relation to those classes of employees who are employed by a professional, that the entire class of employees would get fragmented into those employed by a professional and those employed by businessman and such intention should not be ascribed to the legislature. 15. It is well settled that even amongst one category of persons it is open to the legislature to prescribe rational classification based on intelligible nexus. Therefore, if the legislature has classified a group of persons employed by a professional into one class and another class comprised of group of employees employed by a businessman it would not be correct to hold that the same would result in any unjust discrimination. 16. We may take into consideration the relevant provisions which we are called upon to interpret and decide the question raised before us : "Depreciation. 32.(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 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, recretional 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". 17. On reading the provisions we find that 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. However, sub-section (1) of section 32 uses the phrase "the following deductions shall" and 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. Thereafter, as can be seen from the scheme of the section various clauses would operate on further specific conditions laid down in each such 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. Similarly clause (iia) deals with new machinery or plant installed within period specified in the said clause etc. Now, as can be seen from clause (i) read in juxtaposition with the opening portion of section 32(1), the clause deals with ships but in sub-section (1) opening portion speaks of buildings, machinery, plant or furniture and the reference to ships is absent. Can it then be contended that no deduction for depreciation is allowable because section 32(1) does not provide for ships in the opening portion ? Answer is obviously "No". This is just an illustration of the scheme or the framework in which the section operates. It is, therefore, not possible to accept the contentions raised on behalf of the assessee that the opening portion of section 32(1) would govern the operation of the various clauses which follow : and in case of each clause a deduction would be available against income from business or profession. On close reading of the entire scheme it is apparent that the legislature has used both the terms "business" and "profession" as having distinct meaning and operating in specified situation for the purpose of computing income specified in section 28 in the manner laid down in section 29 of the Act. 18. Clause (iv) states that any building which has been newly erected after 31/3/1961 shall become eligible for a deduction for initial depreciation at the sum equal to 40% of the actual cost of the building in the year of erection subject to the specified user. Now in so far as the use of the building is concerned we find that there are two limbs which provide for (i) the mode of user, (ii) the persons for whom the building is to be used and (iii) nature of user. The first limb provides that the building has to be used solely for residence of persons employed in the business and the income of such person chargeable under the head 'Salaries' is to be Rs.10,000/or less. The second limb provides that building may be used solely or mainly for the welfare of such persons (namely those specified in the first limb) and the nature of use has to be as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room. Thus, it can be seen that the building which has been erected after 31/3/1961 has to be used for either residence or welfare as specified, of persons employed in the business. 19. The submission that the word 'business' should mean to include the term 'profession' and the benefit should be available to an assessee who employs such persons in profession cannot be accepted because the second limb of clause (iv) is an inherent indicator that the deduction is available only in relation to an assessee carrying on business. The second limb of the clause provides for nature of various uses which are meant for the welfare of low paid employees. Making provision for Creches is specifically laid down in section 48 of the Factories Act,1948 which further stipulates that an employer shall provide a Creche when it employs 30 women in its work force. Similarly provision for Canteen is found in section 46 of the Factories Act,1948 and the stipulation is a factory wherein more than 250 or more workmen are employed. Similar is the situation in relation to provision for Shelter, Rest-room or Lunch-room in section 47 of the Factories Act,1948 and the stipulation is employment of 150 or more workers. A professional cannot claim that he would be governed by the Factories Act,1948. Therefore, in case the second limb of the same cluase cannot be applied in case of an assessee carrying on profession it would not be possible to read the term 'business' so as to include 'profession' only for the purpose of application of the first limb of the same clause. It is not possible for the Court to adopt an interpretation which would render one portion of the same clause otiose for the purpose of holding that the relief would be available to one class of assesses under another portion of the same clause. In fact, language used in clause (iv) is so interwoven that it is not possible to interpret the provision in such a manner as the assessee would like the Court to adopt. 20. Another angle from which the matter can be examined is that the entire part 'D' deals with profits and gains of business or profession and right from sections 28 to 43A of the Act, we find that though the phrase has been used in certain sections as 'business' or 'profession' nowhere has the phrase been used as 'business' and 'profession'. Infact, as can be seen, wherever the legislature intended that a benefit of a particular provision should be available to both 'business' or 'profession' it has used the phrase 'business' or 'profession', or after using the said phrase in the opening portion of the section not specified in relation to each individual sub-section or clause where the benefit of deduction is available to both categories of assesses. 21. Furthermore, provisions of section 36 of the Act provide for an almost identical situation wherein we find that sub-section (1) of section 36 of the Act states that the deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein in computing income referred to in section 28, thus making it clear that it is in relation to computation of profits and gains of business or profession. Clauses (i), (ii), (iia), (iii), (iv), (v) and (vi) of section 36(1) of the Act specifically provide for deduction for the purposes of both 'business' or 'profession', while clauses (ia), (viia), (viii), (viiia) and (ix) specifically deal only with situation where the prescribed deduction would be available to an assessee carrying on the specified business. Therefore, the legislature is aware and has specifically provided for some of the deductions under one or the other heading only and if that be so, it would not be open to the court to rewrite the provision so as to enable an assessee carrying on the other activity to seek relief which is otherwise not provided for. 22. The Supreme Court decision in the case of Barendra Prasad Ray and others (supra) appears at first blush to support the case canvassed by the assessee. However, the said decision shall have to be read in light of what is laid down by the Apex Court in the case of C.I.T. Vs. Sun Engineering Works Pvt.Ltd.,198 I.T.R.297, wherein the Hon'ble Court has cautioned against reading its own judgment in a truncated manner. It is stated " "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes it colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9; AIR 1971 SC 530, this Court cautioned (at page 578 of AIR 1971 SC) : It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." 23. Therefore, we may examine the controversy which the Supreme Court was called upon to decide and the factual matrix in