Punjab Tractors Limited vs Commissioner of Income Tax

M.M. Kumar, J.—This appeal filed u/s 260A of the Income Tax Act, 1961 (for brevity, ''the Act''), challenges order dated 27.7.2000, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ''B'', Chandigarh, in I.T.A. No. 838/Chandi/1994, in respect of Assessment Year 1987-88. The assessee-appellant has sought to raise the following substantial question of law:

Whether the Tribunal was correct in law on the facts and circumstances of the case in disallowing the Guest House expenses which are amounting to Rs. 9,59,60/- allowable u/s 30 read with Section 32 or they are to be disallowed u/s 37(4)?

Brief facts of the present case are that return of income in respect of the assessment year 1987-88, was filed on 19.10.1987, which was processed u/s 143(3) and the Assessing Officer made an addition of Rs. 95,960/- claimed by the assessee-appellant as expenses on rents, repair, taxes and maintenance of Guest House. The addition was made primarily on the ground that the rent on the Guest House expenses are covered under the provisions of Section 37(4) and, thus, the same could not have been allowed u/s 30. On the other hand, the assessee-appellant sought the benefit u/s 30 on the ground that the rent is covered under the provisions of that section and not u/s 37, which is a residuary provision. Against the order passed by the Assessing Officer, the assessee-appellant filed an appeal before the CIT(A), which was allowed vide order dated 23.2.1994 (A- 2). The revenue-respondent then preferred an appeal before the Tribunal. The Tribunal decided the issue against the assessee-appellant, vide order dated 27.7.2000. Thereafter, the assessee-appellant filed a miscellaneous application for recalling of order dated 27.7.2000. The opinion of the Tribunal on the aforesaid issue is explicit from the perusal of para 8 of the judgment, which reads thus:

We have carefully considered the rival submissions and examined the facts, evidence and material on record. We have also referred to the orders of the authorities below and the decision of the ITAT in the case of the assessee for earlier year where the ITAT has held that rent paid in respect of the guest house was allowable deduction u/s 30 of the Act. We have also referred to the Judgment of the Kerala High Court in the case of United Catalysts India Ltd. (Supra) where by referring to the provisions of subsections (4) and (5) of Section 37, introduced w.e.f. 28th February, 1970, the High Court held that these clearly prohibited allowing deduction in respect of expenditure incurred for the maintenance of a guest house. The Hon''ble Kerala High Court has also referred to the two decisions in the cases of Commissioner of Income Tax Vs. Ahmedabad Mfg. and Calico Printing Co. Ltd., and Commissioner of Income Tax Vs. Chase Bright Steel Ltd. (No. 1), and has taken a view that after the introduction of Sub-section (4) and (5) of Section 37, expenditure on the maintenance of guest house will not be allowable u/s 30 of the Act. The relevant paragraph at page 237 of 229 ITR is reproduced below:

A reading of Sub-section (4) and more clarified by Sub-section (5) would clearly show that any accommodation by whatever name called, maintained, hired, reserved or arranged by the assessee for providing boarding or lodging to any person on tour or visit to the place at which such accommodation is situated, will be treated as accommodation in the nature of a guest house and that no allowance shall be made in respect of any expenditure incurred by the assessee after February 28, 1990 on the maintenance of any such guest house. It cannot be contended that in spite of the above provisions specifically relating to guest house, the assessee can still put forward a claim under the general provisions of Section 30. Learned Counsel for the assessee relied on the decisions in Commissioner of Income Tax Vs. Chase Bright Steel Ltd. (No. 1), and Commissioner of Income Tax Vs. Ahmedabad Mfg. and Calico Printing Co. Ltd., in support of its contention. On examining these decisions, we find the first decision, which is rendered by the Bombay High Court, considered a case prior to the introduction of Sub-sections (4) and (5) of Section 37. The second decision which was rendered by the High Court of Gujarat, just followed the Bombay High Court''s decision even though, by that time, Sub-section (4) of Section 37 had been introduced. We are not inclined to follow the above decisions in the present case.

Obviously, when ITAT Chandigarh Bench considered this case on 29.11.1994, it did not have the benefit of the Judgment of the Kerala High Court which was delivered on 9th December, 1996. Besides, the Calcutta High Court in the case of Commissioner of Income Tax Vs. Upper Ganges Sugar Mills Ltd., has also held that the language of Sub-section (4) of Section 37 of the Income Tax Act is quite emphatic and provides that no allowance at all is intended in respect of any expenditure incurred after February 28, 1970, on the maintenance of any residential accommodation in the nature of guest house. The prohibition against the allowance of maintenance expenditure in respect of guest house is unmitigated. Respectfully following the Judgments of the Kerala High Court and Calcutta High Court, we hold that expenditure by way of rent forms part of the maintenance of guest house and is, therefore, not allowable u/s 30 of the Act. Accordingly, we set aside the order of the CIT(A) and restore that of the A.O. This ground of appeal is allowed.

Mr. Pankaj Jain, learned Counsel for the assessee-appellant at the outset has argued that the aforesaid question stands answered by Hon''ble the Supreme Court in the case of Britannia Industries Ltd. Vs. Commissioner of Income Tax, West Bengal, Kolkata and Another, . He has pointed out that the intention of the legislature was to exclude from benefits of deduction, the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guest house of the nature indicated in Sub-section (4) of Section 37 of the Act. According to the learned Counsel had the legislature intended the deduction to be allowable in respect of all types of building/accommodation used for the purposes of business or profession then it would not have felt the necessity to amend the provisions of Section 37 so as to make a definite distinction with regard to building used as guest house as defined in Section 37(5) and the provisions of Section 31 and 32 would have been sufficient for that purpose. It is, thus, conceded that after February 28, 1970 (w.e.f. 1.4.1970) when amendment was incorporated by way of adding Sub-section (4) of Section 37 of the Act, there was clear prohibition to allow deduction in respect of expenditure incurred for maintenance of guest house. Accordingly, he has submitted that the question stand already decided in favour of the revenue and against the assessee.

In view of the fair stand taken by Mr. Pankaj Jain, learned Counsel for the assessee-appellant, Ms. Urvashi Dhugga has simply submitted for dismissal of the appeal as the matter is covered in favour of the revenue-respondent by the judgment of Hon''ble the Supreme Court rendered in the case of Britannia Industries Ltd. (supra).

As a sequel to the above discussion, the question is decided against the appellant-assessee and in favour of the respondent-revenue.