1. These three appeals by the assessee against the orders of Commissioner of Income-tax (Appeals) 17, New Delhi, CIT(A), dated 24-7-1992, 2-3-1993 and 14-8-1996, for the assessment years 1989-90, 1990-91 and 1991-92 respectively, involving a common issue, arc, for the sake of convenience, disposed of by a common order.
2. The objection of the assessee is against sustenance of disallowance of Rs. 1,68,000, Rs. 2,40,600 and Rs. 2,52,000 in assessment years 1989-90, 1990-91 and 1991-92 respectively, being the rent in respect of premises at D-2, South Ext. Part-II, New Delhi.
3.1 The assessee firm carried on business of sale of ladies and children garments etc. in Connaught Place, New Delhi under the name and style of "Jainsons Outfits", Briefly stated, the facts concerning the matter as they emerge from the orders of the Assessing Officer (A.O.) and the CIT(A) are that in the previous year relevant to assessment year 1989-90, the assessee had taken from M/s. Moola Mal and Sons (HUF) a premises at D-2, NDSE-II, New Delhi, on monthly rent of Rs. 21,000 with a deposit of Rs. 5 lakhs, w.e.f. 9-8-1988, for starting a new shop. In assessment year 1989-90, deduction for rent for a period of 8 months was claimed at Rs. 1,68,000. The Assessing Officer found that during the relevant period, the premises had not been "put to use" for the existing business or its expansion. He, therefore, disallowed the claim for deduction of Rs. 1,68,000 on account of rent. In the previous years relevant to assessment years 1990-91 & 1991-92 also, the premises was admittedly not put to use and, therefore, following the order for the assessment year 1989-90, claim for rent of Rs. 2,40,600 and Rs. 2,52,000 in Ehose years was disallowed.
3.2 In appeals before the CIT(A), the submission of the assessee was that the premises were taken for expansion of the existing business and not for setting up of a new business. It was contended that the premises required extensive renovation and furnishing, including the installation of central air-conditioning, lift, fire fighting equipment, electric and water supply etc. After finalising the plans, this work was commenced and eventually the shop started on 17-4-1992.
It was argued that the disallowance of rent is incorrect in law and is liable to be deleted. In support of this contention reliance was placed on the following decisions :- (iii) CITv. Oswal Spg. & Wvg. Mills Ltd.  160 ITR 426/26 Taxman 206 (Punj. & Har.).
3.3 The issue was considered by the Ld. CIT(A) in detail in the order for assessment year 1989-90. Me opined that the above cited and other decisions relied upon by the assessee did not support its case as they were distinguishable both in law and on facts. The Id. C1T(A) observed that the words in Section 30 of the I.T. Act, "used for the purposes of business denote user for such purposes during the accounting year. What is allowed under this clause is the rent payable for the period during which the premises are used for purposes of business. The rent paid for the period during which the business is not carried on in the premises is not allowable." To support his view, he referred to the facts and decision of the M.P. High Court in the case of Noshirwan & Co. (P.) Ltd. v. CIT  77 ITR S22, holding that on the facts found, it cannot be said that the building was used during the accounting year for the purposes of business and, therefore, rent paid in respect of it was not allowable as a deduction under section 30 of the I.T. Act and also that the expenditure incurred in payment of rent was not allowable under section 37, as expenditure laid out wholly and exclusively for the purposes of business as Section 37 docs not apply to any expenditure of the nature described in Sections 30 to 36. For the latter proposition, even while admitting that it was on different facts, the ld. CIT(A)ialso referred to the decision of the Bombay High Court in the case of Pbhoomal Bros. v. CIT  34 ITR 64. Finally, after quoting certain observations of their Lordships in the case of Liquidators of Pursa Ltd v. CIT 25 ITR 265 (SC) and by observing as under, in his ordcr for the assessment year 1989-90, the ld. CIT(A) upheld the action of the Assessing Officer in disallowing the claim for rent for the premises which were not used for business purposes during that year :-- "The facts of the ease before me are that the premises was taken on rent on 9-8-1988. The premises after being taken on rent required extensive renovation and furnishing including the installation of central air-conditioning, lift and appropriate electric supply and distribution system, fire fighting equipment etc, for being used as a modern high class shop as admitted by the assessee. The opening ceremony of this show-room took place on 7-4-1992, i.e. after 44 months of its being taken on rent. Thus examining the facts of the case in the light of the ratio of the aforesaid decisions, I have no hesitation in coming to the conclusion that the appellant has no claim for deduction of rent." 3.4 The order for the assessment year 1989-90 was followed by the Ld.
C1T(A) in assessment year 1990-91. In this year, the assesseehad furlher placcd reliance on the Gujarat High Court decision in (he case of CIT v. R. Tolat & Co.  126 ITR 551/ 5 Taxman 56. The Ld.
CIT(A) held that in view of the Apex Court decision in the case of Liquidators of Pursa Ltd. (supra) and M.P. High Court decision in Noshirwan & Co. (P.) Ltd.'s case (supra), followed by him in earlier year, it has to be held that the assessee has no case of deduction of rent either under section 30 or under section 37 of the Act. This order was followed as such in assessment year 1991-92 also.
4. 1 The Paper Books placed by the assessee before us contained inter alia, copies of certain lease deeds/agreements in respect of the premises at D-2, NDSE-II, New Delhi and the correspondence exchanged with Vijaya Bank, Connaught Circus, New Delhi, in connection with grant of loan for the assessee's project in the said premises.
4.2 Shri V.K. Mchta, Ld. counsel for the assessee, at the outset clarified that the property in question comprised seven parts, two of which were taken on lease from the landlord directly by the assessee and the remaining five by other members of the group with whom the assessee had entered into sub-lease agreements. While reiterating the facts set out in the impugned orders, he stated that within a short period of taking over of the entire premises by the assessee, project report and financing proposals for the project of the new shop were submitted to Vijaya Bank Ltd., for sanction of a loan. Vide letter dated 7-12-1988, copy placed in the Paper Book, the Bank sanctioned a "term loan" on Rs. 75 lakhs and the first instalment of Rs. 50 lakhs was released on 27-12-1988. It was submitted that deduction for interest on the said loan has been allowed by the Assessing Officer himself. In this connection our attention was invited to the Assessing Officer's discussion (on pages 3-4) in the assessment order for the assessment year 1989-90. It was pleaded that if the loan taken for the new shop project was held to be capital borrowed for the purposes of the existing business and deduction for interest on such loan allowed, payment of rent could not be treated differently. The learned Counsel contended that the facts of the cases relied upon by the learned CIT(A) were distinguishable. In his own turn, besides the decisions cited before the Ld. CIT(A), including the Gujarat High Court decision in the case of R. Tolat & Co. (supra), the Ld. Counsel placed strong reliance on the Punjab & Haryana High Court decision in the case of CITv. O.P.Khanna & Sons  140 ITR 558/ 10 Taxman 243. He also referred to the discussion at page 485 of the commentary of Ld. authors Kanga & Palkhivala, Vol. I, 8th edition. It was vehemently argued that the claim for the rent was allowable under section 30 and/or under section 37( 1) of the Act and, therefore, the Ld. CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer.
5.1 We have given our utmost consideration to the facts and circumstances of the case and the rival submissions. There is no dispute about basic facts, which are already set out in para 3 above and hence those need not be repealed.
5.2 The short question for consideration is whether on the facts and in the circumstances of the case deduction for rent paid in the three years under consideration for the premises at D-2, NDSE-II, New Delhi, was allowable under section 30 of the T.T. Act and, if the answer is in negative, is it allowable under section 37(1) of the Income-lax Act, 1961. A plain reading of Section 30 would show that the expenses enumerated therein are allowable if the premises is "used for the purposes of the business or profession". These very words arc used in Section 32 of the Income-tax Act, 1961, corresponding to part of Section 10(2) of the 1922 Act, and their purport and scope has been a subject matter of consideration in a large number of judicial decisions, including the Apex Court decision in the case of Liquidators of Pnrsa Ltd. (supra) referred to and relied upon by the Ld. CIT(A).
The ratio of this decision, in our considered opinion, is that there must be effective user in commercial sense and the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business of the assessee. Their Lordships of the Supreme Court, while deciding the question regarding the use of machinery or plant for the purpose of business, left open the interpretation of the word "used", in so far as it pertained to the difference between the active or passive use. However, even if this word is interpreted liberally so as to give a wider meaning and embrace the passive user also, we are of the considered opinion that the building or machinery, as the case may be, should at least be ready and capable of being put to use for the business of the assessee. Before proceeding further, we would like to record that we are inclined to take this liberal view in this case which is tacitly approved by the M.P. High Court, as per the following observations, in its judgment in the case of Noshirwan & Co. (P.) Ltd- (supra), relied upon by the Ld.
CIT(A), in preference to the view taken on this issue by the Gujarat High Court in the case of R. Tolat & Co. (supra) and the Punjab & Haryana High Court in the case of O.P. Khanwa & Sons (supra), relied upon by the asscssee :-- "Even according to the facts alleged by the asscssee (which have not been accepted), the building was not kept ready for use but was being made fit for use of business by installing machinery and furnishing it It was never ready for use during the accounting year.
When a building is being made fit for use, the building cannot be said to be in use either actively or passively." - Noshirwan & Co.
(P.) Ltd.'s case (supra) at page 826.
5.3 Adverting to the facts of the present case, we find that the building admittedly consisted of seven independent portions which were separately demarcated and for which seven separate lease deeds were executed. Therefore, it could not as such be used for the project undertaken by the assessee. For this purpose, it required major structural changes for which approval of the concerned authorities was to be obtained, involving a long drawn process. Also, substantial investment was required to be made, which is evident from the fact that initially itself the asscssee had sought a loan of Rs. 75 lakhs from the Bank. Further, a cursory look at the papers placed by the asscssee in the Paper Books reveals that after the execution of tenancy/sub-tenancy agreements on 9-8-1988 and sanction of loan of Rs. 75 lakhs on 7-12-1988, even till September, 1989, applications made to various authorities for approval of the construction plan and clearance of the project were under process, as conveyed by the assessee to the Bank vide its letter dated 30-9-1989, copy placed at page 8 of the Paper Book. Vide its letter dated 1-11-1989, copy placed al page 11, the assessee had informed the Bank that they were "expecting clearance from the authorities within the next couple of months whereafter the construction work will start." Thereafter, vide its letter dated 30-4-1990, copy placed at page 14, the assessee had informed the Bank that some more lime will be required for clearance of project from the authorities. As per assessce's letter to the Bank dated 22-1-1991, copy placed at page 16, the work was started in September, 1990. It had thus taken more than 2 years from the date of taking over the premises even to start the construction work, which was expected to be completed around July-August, 1991, as per the above letter. Vide its subsequent letter dated 31-7-1991, copy placed al page 19, the assessee had informed the Bank that the building work was complete and work in respect of air-conditioning, electricity and lift installation etc. was in progress. It is thus evident that till 31-3-1991, i.e., the end of the previous year relevant to assessment year 1991-92 which the latest year in appeal before us, the premises was not ready for use for the purposes of asscssee's project. Therefore, even on a liberal interpretation of the word "used" as passive use, the asscssee cannot he said to ha,ve satisfied the condition precedent for deduction of rent under section 30 of the Income-tax Act. We hold accordingly.
6.1 As regards deduction of rent for the premises under section 37(1) of the Income-tax Act, there is strong cleavage of judicial opinion on the . question whether the said section can be applied to any expenditure of the nature described in Sections 30 to 36 of the Act if it is found not to be fulfilling the conditions laid down in these sections. While some High Courts, including the M.P. High Court in its decisions in the case of Noskirwan & Co, (P.) Ltd (supra) applied by the Ld. C1T(A) in this case, have answered the question in negative, some of the High Courts, including the Gujarat High Court in the case of R. Tolat & Co. (supra), relied upon by the assessce, have answered it in affirmative. In view of our discussion in the succeeding paragraphs, we are inclined to take a view which is favourable to the assessce.
6.2 Section 29 of the Income-tax Act provides that income from "Profits & gains of business or profession", referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43C/D. These sections provide the scheme for allowable deductions for computing the chargeable income. Section 30 deals with rent, rates, taxes, repairs and insurance in respect of premises used for the purpose of the business or profession. Section 37, which is a general section, provide that any expenditure other than of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the asscssee, laid out or expended wholly and exclusively for the purposes of the business or profession, shall be allowed in computing the income chargeable under the head "Profits & gains of business or profession". Then there are provisions such as Sections 37(2)/(2B), (3) and (4) (before omission) laying down the circumstances in which certain deductions shall not be granted. In so far as allowance for rent of business premises is concerned, there is no specific prohibition in ihe relevant provisions. It is evident that Section 30 operates in a limited field where the premises arc used for the purposes of business or profession and in that case deduction for rent, local rates or municipal taxes etc. can be granted. It would not cover a case where the premises are not used for the purposes of business but are incidental to the carrying on of the business. In that situation, the expenditure on that count would not be of the nature described in Section 30 and hence Section 37(1) would be applicable. In our considered opinion it will be stultifying Section 37(1) and its residuary nature if a construction is put on it to mean that, whenever an allowance fails under sections 30 to 36, that fact by itself would exclude entertainment of the claim under section 37(1).
6.3 The Supreme Court in the case of CITv.KalyanjiMavji& Co.  122 ITR 49/3 Taxman 35 has dealt with this aspect in the context of current repairs for building & machinery under Sections 10(2)(v) and 10(2)(xv) of the Indian Income Tax Act, 1922 which is part correspond to Sections 30(a)(ii) & Section 37(1) of ihe Income-tax Act, 1961 respectively. The contention of the Department before the Supreme Court was thai, if Section 10(2)(v) was the relevant clause, being the specific provision in respect of current repairs to building and machinery, there is no justification for relying on Section 10(2)(xv) which was a residuary clause deaiing with expenditure not being an allowance of the nature described in any of the preceding clauses of Section 10(2). This submission was made on ihe principle that, if a special provision covers the case, resort cannot be had to the general provision. The Apex Court negatived this contention by holding that the subject matter of Section 10(2)(v) is "current repairs" and it is difficult to agree that repairs which are not "current repairs" should not be considered for deduction on general principles or under Section 10(2)(xv). While laying down that there is a good reason that the scope of Section 10(2)(xv) should be construed liberally, their Lordships of the Supreme Court observed (at page 53), "we must remember that on accepted commercial practice and trading principles an item of business expenditure must be deducted in order to arrive at the true figure of profits and gains for lax purposes." 6.4 The purport and scope of section 10(2)(ii) of the 1922 Act which in part corresponds to Section 30(a)(i) of the Income-tax Act, 1961 and Section 10(2)(xv), corresponding to Section 37(1) of the 1961, Act were also considered by the jurisdiclional High Court in the case of CIT v.Rama Krishna Steel Rotting Mills  95 ITR 97 (Delhi). It was held that if an expenditure cannot be allowed under any of the specific clauses of subsection (2) of Section 10 of the Act, on the ground that the conditions prescribed in these specific provisions have not been satisfied, still the expenditure may be allowed under the general clause (xv).
6.5 In view of the foregoing discussion, we hold that even though in this case deduction for rent in respect of premises at D-2, NDSE-II,New Delhi is not allowable under section 30 of the Income-lax Act, 1961, for the three years under consideration, the claim is to be granted under section 37(1) of the Income-tax Act. Ordered accordingly.
7. The ground confined to assessment year 1991-92 for grant of relief in the amount of interest charged under various sections is admittedly consequential. Hence it does not call for any adjudication.