Commissioner of Income Tax vs Maharana Mills Ltd.

G.T. Nanavati, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following three questions to this court, u/s 256(1) of the income tax Act, 1961, for its opinion :

"1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 69,076 being expenses incurred on current repairs of the guest house Villa 7 at Porbandar is not disallowable u/s 37(4) of the Income Tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 69,076 incurred on current repairs is allowable u/s 30 of the income tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 36,329 on messing and tea cannot be disallowed as entertainment expenditure u/s 37(2B) of the Income Tax Act, 1961 ?"

During the assessment proceedings for the assessment year 1976-77, the assessee claimed deduction in respect of various items of expenditure. It had claimed deduction of Rs. 36,329 being the messing expenses and part of tea expenses. They also claimed deduction of Rs. 69,076 being the expenses incurred on current repairs of the guest house Villa 7 at Porbandar. Both these expenditures were disallowed by the Income Tax Officer on the ground that the first expenditure being in the nature of entertainment was required to be disallowed u/s 37(2B) and the other expenditure was not allowable u/s 37(4).

The Appellate Assistant Commissioner disagreed with this view of the income tax Officer and allowed both the claims.

The Revenue, therefore, approached the Tribunal by way of an appeal and in that appeal the Tribunal also confirmed the view taken by the Appellate Assistant Commissioner. It, therefore, moved the Tribunal for referring the above-stated three questions to this court.

As can be seen from the questions, Nos. 1 and 2 pertain to the same expenditure of Rs. 69.076 being the expenses incurred on current repairs of the assessee''s guest house at Porbandar. What is contended by the learned counsel for the Revenue is that Villa 7 maintained by the assessee at Porbandar was admittedly a guest house and, therefore, section 37(4) was attracted in this case, and that it was not open to the assessee to claim deduction of that amount u/s 30 of the Act. This contention raised on behalf of the Revenue cannot be accepted in view of the two decisions of this court in Commissioner of Income Tax Vs. Kaira Dist. Co-operative Milk Producers Union Ltd., and Commissioner of Income Tax Vs. Ahmedabad Mfg. and Calico Printing Co. Ltd., . The view taken by this court is that the expenditure which is referred to in clause (i) of sub-section (4) of section 37 is one which would allowable as deduction u/s 37(1). In order to attract the provisions of sub- section (4), it must first be established that it is an expenditure which is covered by section 37(1). Section 37(1) refers to expenditure, (i) which is not an expenditure of the nature described in section 30; (ii) which is not an expenditure of capital nature; and (iii) which is not personal expenditure of the assessee. Since the expenditure in question was an expenditure in the nature described in section 30, it would not fall u/s 37(1). The Tribunal was, therefore, right in taking the view that it was not disallowable u/s 37(4) and that it was allowable u/s 30 of the Act.

As regards the messing and tea expenses, it has been found as a matter of fact by the Appellate Tribunal that the meals which were supplied to staff members and visitors were quite simple. The Tribunal has specifically stated that the expenditure, which was incurred by the assessee in this behalf was not on a lavish scale. Thus, there was no element of entertainment expenditure in it and in view of the decision of this court in Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., the same was rightly held as allowable expenditure as it was not hit by section 37(2B) of the Act.

We, therefore, answer all the three questions in the affirmative, that is, against the Revenue and in favour of the assessee. No orders as to costs.