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Issues Involved:
1. Interpretation of section 37(4) of the Income-tax Act, 1961. 2. Classification of expenses as guest-house expenditure. 3. Allowability of deductions for guest-house maintenance expenses. Summary: Issue 1: Interpretation of section 37(4) of the Income-tax Act, 1961 The court examined the provisions of section 37(4) of the Income-tax Act, 1961, which states that no allowance shall be made in respect of any expenditure incurred by the assessee on the maintenance of any residential accommodation in the nature of a guest house. The court emphasized that the expression "on the maintenance of any residential accommodation in the nature of a guest house" should be given a wider meaning to include not only the maintenance expenditure but also other essential expenditures such as provisions for food and refreshments for guests staying in the guest house. This interpretation aligns with the legislative intent to curb lavish expenditures on guest houses. Issue 2: Classification of expenses as guest-house expenditure The court reviewed the classification of various expenses incurred by the assessee: - Rs. 5,716 on the purchase of coffee and tiffin for visitors to the factory. - Rs. 7,973 on the purchase of provisions for meals and tiffin prepared in the guest house. - Rs. 782 as wages to the cook. - Rs. 3,469 on the maintenance of the guest house accommodation. The Income-tax Officer initially treated the entire sum of Rs. 17,940 as guest-house expenditure, which was not allowable u/s 37(4). However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal disagreed, holding that these expenses could not be regarded as guest-house or entertainment expenditure. Issue 3: Allowability of deductions for guest-house maintenance expenses The court analyzed the specific items of expenditure: - The first item of Rs. 5,716 was deemed not to be guest-house expenditure as there was no evidence that it was incurred in the guest house. - The second item of Rs. 7,973 was considered guest-house expenditure as it was for provisions for meals and tiffin for guests staying in the guest house. - The third and fourth items (Rs. 782 and Rs. 3,469) were also considered guest-house expenditure as they related directly to the maintenance of the guest house. Conclusion: The court upheld the Tribunal's decision that the expenditure of Rs. 5,716 on coffee and tiffin for factory visitors was not guest-house expenditure. However, the other items (Rs. 7,973, Rs. 782, and Rs. 3,469) were deemed guest-house expenditures and not allowable as deductions u/s 37(4). The question of law was answered accordingly, with no order as to costs.
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