http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

CASE NO.: Appeal (civil)  7486 of 2001

PETITIONER: G.K. Choksi & Company

RESPONDENT: Commissioner of Income Tax, Gujarat

DATE OF JUDGMENT: 27/11/2007

BENCH: ASHOK BHAN & H.S. BEDI & V.S. SIRPURKAR

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO(S). 7486 of 2001

BHAN, J.

1.      The 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  Act").

2.      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.

3.      The brief facts are as under:  The assessee (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.    

4.      The 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.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

5.      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.  

6.      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:

"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 under Section  32(1)(iv) of the Act ?"

7.      The 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 Act.

8.      The relevant provisions of Section 32 of the Act, as  they existed at the relevant time,  are reproduced below:

"Section 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: (i)    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:                Provided 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;                  Provided 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

assessee after the 28th day of February, 1975,  and is used otherwise than in a business of  running it on hire for tourists;                 (iia)           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.

(v) xxxxxxxxxxxx (vi) xxxxxxxxxx"

9.              Shri 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;   "business" 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.

10.             It 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.   It is 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 the same.

11.             As against this Mr. V. Shekhar, learned senior  counsel appearing for the Revenue, submits that Section

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

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.   That, 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.

12.             We 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 Act.

13.             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.   It 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

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.    

14.             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:

"The 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."

15.             In 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.   This 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.

16.             As 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.

17.             Part D consists of Sections 28 to 43 of the Act  which deals with profits and gains of business or profession.   Though 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

to extend the benefit to either "business" or "profession",  i.e., the one would not include the other.  

18.             We 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.   

19.     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.