2009 (4) TMI 819 - HC - Income Tax

Whether in the facts and circumstances of the case the Tribunal was right in holding that expenditure on renting and maintaining a guest house is allowable as business expenditure ? Held that - In view of the fact that every assessment of a unit is unique by itself even assuming that the decision rendered by the Tribunal is not in accordance with law and can be agitated in appropriate case before the appropriate forum the appeal is dismissed

Summary

Issues:
1. Disallowance of expenditure on guest house under section 37(2A).
2. Applicability of Central Board of Direct Taxes Circular on filing appeal by Revenue.
3. Binding nature of circular on Revenue regarding tax effect limit for filing appeal.

Issue 1: Disallowance of expenditure on guest house under section 37(2A)
The case involved an appeal by the Revenue against the order of the Income-tax Appellate Tribunal disallowing the expenditure claimed by the assessee for the assessment year 1997-98. The Assessing Officer disallowed the expenditure on the ground that section 37(2A) specifically disallows any expenditure incurred on the maintenance of a residential accommodation like a guest house. However, the Commissioner of Income-tax (Appeals) allowed the appeal based on a decision of the Income-tax Appellate Tribunal, which held that the expenditure on a guest house is allowable as business expenditure. The issue before the court was whether the Tribunal was correct in holding that expenditure on renting and maintaining a guest house is allowable as business expenditure. The court considered the arguments from both sides and examined the relevant legal provisions and precedents before dismissing the appeal and upholding the decision of the Tribunal.

Issue 2: Applicability of Central Board of Direct Taxes Circular on filing appeal by Revenue
The court also addressed the applicability of the Central Board of Direct Taxes Circular dated March 27, 2000, which prescribed a monetary limit for filing an appeal by the Revenue. The circular set a limit of Rs. 2 lakhs for filing an appeal, with certain exceptions. In this case, the tax effect was lower than the monetary limit specified in the circular, making it improper for the Revenue to file an appeal against its own circular. The court referred to a similar case where it was held that the circular is binding on the Revenue, and if the tax effect is less than the specified limit, the Revenue need not pursue the appeal.

Issue 3: Binding nature of circular on Revenue regarding tax effect limit for filing appeal
The court emphasized the binding nature of the circular issued by the Central Board of Direct Taxes on the Revenue. It cited various cases and legal precedents to support the principle that if the tax effect is below the limit specified in the circular, the Revenue should not agitate the issue on appeal. The court highlighted that the circular is as binding on the Revenue as judicial precedent and dismissed the appeal based on the fact that the tax effect was below the prescribed limit. The court also noted that each assessment is unique, and even if a decision by the Tribunal is questionable, it can be challenged in the appropriate forum, but in this case, the appeal was dismissed with no costs.