1. In this appeal by the assessee relating to the assessment year 1977-78 an order was passed on 26-8-1982 but this order has since been recalled and the matter has been re-heard for disposing it of afresh.
2. The only ground raised is that the Commissioner (Appeals) erred in maintaining a diallowance of Rs. 7,280 out of legal expenses. The disallowance was made by the IAC who made the assessment in both the periods for which the assessment was made on the firm. While Rs. 1,000 was disallowed in both the periods out of legal expenses on the ground that for want of details, there was a disallowance of Rs. 5,280 in respect of the legal expenses in settling claims under the Income-tax Act, 1961 ('the Act'). In fact, the assessee had claimed Rs. 10,280 and the assessing officer had allowed Rs. 5,000 under Section 80VV of the Act. This had the effect of disallowing Rs. 5,280. This action of the assessing officer has been upheld by the Commissioner (Appeals).
3. Before us the dispute is against this disallowance of Rs. 5,280 though the ground speaks Rs. 7,280. The details of the expenses which had been claimed are as under :Tribunal for assessment year 1970-71 : 500.00Bill No. 109 dated 16-10-1976 of Salve & SalveTribunal at Allahabad for assessment year 1970-71 : 3,500.00Receipt dated 20-11-1976 of Shri S.P.No. 1892 (A) of 1973-74 : 330.00Bill No. 518 of 21-8-1976 of Shri A.C Sinha,assessment years 1971-72 and 1973-74 : 2,200.00Bill No. 130 of 22-1-1977 of Salve &for assessment years 1971-72 and 1973-74 : 3,500.00Bill No. 80 of 18-5-1976 of Salve &R.C. Paliwal's appeal : 250.00 _________ While, according to the IAC and the Commissioner (Appeals), the total amount to be allowed is restricted to Rs. 5,000 under the provisions of Section 80VV. The assessee challenges this interpretation of that provision. The provisions of Section 80VV stand as under : In computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any Court relating to the determination of any liability under this Act, by way of tax, penalty or interest : Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees.
It is the interpretation of the above section that has created controversy in this case. The learned counsel for the assessee, Shri Harish Salve, has very ably presented the case of the assessee before us. He submitted that the limit for allowance placed under Section 80VV is not in respect of the expenses incurred in connection with certain proceedings under the Act in the whole year but the restriction is in respect of expenses incurred on any proceedings before the Income-tax Department or the Appellate Tribunal or any Court relating to the determination of any liability under the Act by way of tax, penalty or interest. According to the learned counsel, the proviso to the section does put a limit on the deduction of such expenses but that limit is in respect of 'any proceeding'. In other words, the learned counsel for the assessee submitted that the law places a restriction of Rs. 5,000 for each proceeding and not on expenses incurred in the whole year.
4. The learned counsel for the assessee tried to substantiate his argument by submitting that the interpretation placed by the revenue authorities would make the provision inequitable and irrational. He contended that in the case of an assessee, it is not only one year's proceedings which come for adjudication in the course of a particular accounting period. In fact several matters are pending at various stages and a taxpayer has to settle his tax liability before different authorities, for assessment as well as appeals and sometimes before the Courts. In a particular year there may be several years' proceedings before the various authorities and the Courts whereas in another year there may be proceedings for only one year or two. He, therefore, submitted that if the section has to put an overall restriction or limitation to the allowance of expenses up to Rs. 5,000 for the whole year, it would mean that the allowance for 10 proceedings would be the same as the allowance of one or two proceedings. Such an interpretation, the learned counsel submitted, would make the section quite anomalous and liable to be struck down as arbitrary and irrational. The learned counsel further contended that though the Tribunal may not go into the vires of a section, it can certainly be persuaded to interpret a particular section in such a manner so as to make it intra vires of the construction.
5. The learned counsel placed before us the interpretation of the words 'any proceedings' and submitted that in the eyes of law it means judicial business before an authority or a Court including all possible steps in an action from its commencement to the execution of judgment.
The learned counsel submitted that each assessment from the beginning till the making of the assessment can be one proceeding whereas each appeal from the beginning till the passing of the appellate order shall be one proceeding. He, therefore, contended that the law should be so interpreted so as to mean that Rs. 5,000 was allowable in respect of each such proceeding relating to the determination of tax, penalty or interest under the Act.
6. The learned counsel further contended that in respect of business income expenses incurred for settling the tax liability has been held to be a legitimate business expenditure. In respect of such expenditure if a restriction is placed by the Legislature, the interpretation should be given in such a manner so as to make the provision reasonable and this was also a possible construction. For this principle, he referred to the observations of the Hon'ble Supreme Court in the case of Addl, CIT v. Surat Art Silk Cloth Mfrs. Association  121 ITR 1, 17. The learned counsel also highlighted the anomaly in restricting such expenses for each assessment year and submitted that a proceeding can go on for several years and if only one proceeding is there, the assessee can claim Rs. 5,000 in each assessment year. This, according to him, could not have been the intention.
7. The departmental representative referred to the language of Section 80VV and submitted that the Legislature has put an overall restriction and the provision to the section clearly says that the deduction shall not exceed, in the aggregate, Rs. 5,000. He also submitted that Section 37 of the Act has also been amended so as to exclude expenses falling under Section 80VV from consideration under Section 37.
8. In order to consider the submissions made before us, we may briefly refer to the history of the above provision. There used to be some controversy regarding allowance of legal expenses incurred for settling the tax liability as a deduction in the computation of business income.
However, there were case laws which ultimately held that such expenses were allowable business expenditure. However, no such deduction was available to persons having income from sources other than business. On the recommendation of the Direct Taxes Enquiry Committee (Wanchoo Committee) this provision was made to allow deduction of expenses incurred by an assessee on income-tax proceedings subject to a maximum of Rs. 2,000. However, when the Bill was referred to the select Committee, it was thought that a limit of Rs. 2,000 was too low and the Select Committee suggested that the limit should be raised to Rs. 5,000. It may be mentioned that the Direct Taxes Enquiry Committee had recommended that the specific provision should be made to permit deduction of all expenses pertaining to income-tax appeals, revisions and references. However, when the bill came, these restrictions were placed which were slightly increased by the Select Committee.
9. After this the Direct Tax Laws Committee, known as Choksi Committee, had recommended that no limit should be put on such expenses as it was artificial. Choksi Committee had, therefore, recommended that the reference to Section 80VV in Section 37 should be omitted. According to their recommendation, Section 80VV was to enable the assessees having income other than business income to claim such deduction under that section. In addition, the committee recommended that the limit of Rs. 5,100 should be removed. The committee appreciated that the artificial ceiling may prove inequitous because a taxpayer would necessarily have to defend himself against wrongful assessment. They observed that by the very nature of tax proceedings, a monetary limit is impractical because the sum of Rs. 5,000 may be excessive in a large number of cases whilst it may be a pittance in some other case.
10. After this recommendation the matter has remained where it was and the law had not been further amended or liberalised. In the circulars issued by the Board the interpretation has been made that the ceiling of Rs. 5,000 was in respect of the expenditure incurred by an assessee in any one previous year.
11. With this background we have to consider the language of the section. In our opinion, the language is very clear and categorical.
The proviso emphatically restricts the deduction which cannot exceed in the aggregate Rs. 5,000. In the main section a reference is to a deduction of any expenditure incurred by an assessee in the previous year in respect of such income-tax proceedings. If both the things are read together, it would be clear that the law has placed a restriction for the allowance of such expenses incurred in a previous year. If the intention was otherwise, the law would not use the words 'in any case exceed in the aggregate'. The intention has been further confirmed by the fact that the recommendation of Choksi Committee in this regard has not yet been accepted by amending the law.
12. It is true that the provision has put an artificial ceiling and it is also inequitous in several cases. This has been clearly pointed out by the Choksi Committee. However, we have to interpret the law as it stands. Shri Salve has been able to vehemently argue in favour of the law which should be there and we might have reacted favourably had we the power to legislate. However, where the language of law is clear, the meaning should not be stretched either to extend a benefit or to restrict a benefit. We are, therefore, of the view that the provisions of Section 80VV do not permit the allowance of expenses in excess of Rs. 5,000 in one year. In this connection, we may mention that there are other examples in the Act where such artificial restrictions have been laid down for allowing expenses or for other purposes. One may give an example of entertainment expenses which are restricted to Rs. 5,000 in some years and to other figures in certain other years. As regards inequity, it is a well-known principle that taxation and equity are sometimes strangers to each other. We cannot, therefore, interpret the section in a manner contended by the learned counsel for the assessee only on the ground that his interpretation, according to him, will make the provision more equitable.