2013 (1) TMI 138 - HC - Income Tax

Guest house expenses - Depreciation on guest house - Assessee claim was that the apartments were kept ready for stay by the touring officers due to the difficulties faced by such officers to get accommodation there - Held that - Following the decision in case of Britannia Industries Limited (2005 (10) TMI 30 - SUPREME COURT) that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37. In favour of revenue

Summary

Issues:
1. Allowance of guest house expenses as expenditure under Section 37 of the Income Tax Act, 1961.
2. Interpretation of conflicting judgments regarding the treatment of residential accommodation as a guest house under Section 37(4) of the Act.

Analysis:
1. The appeal revolved around the claim of the assessee regarding the allowance of expenses incurred for maintaining residential accommodation at Madras and Coimbatore as expenditure under Section 37 of the Income Tax Act, 1961. The first appellate authority had allowed the claim, which was upheld by the Tribunal. The assessee argued that the apartments were kept ready for stay by touring officers due to accommodation difficulties. The Tribunal referred to the decision of the Calcutta High Court in Commissioner of Income Tax v. Parshva Properties, wherein a similar situation was considered. However, the Supreme Court in Britannia Industries Ltd. v. CIT disagreed with the Bombay High Court judgment and supported the Calcutta High Court's interpretation of Section 37. The Supreme Court clarified that expenses towards rents, repairs, and maintenance of premises used for guest house accommodation are not allowable under Section 37(4).

2. The conflicting decisions of various High Courts led to the Supreme Court's intervention in Britannia Industries Ltd. v. CIT. The Supreme Court's ruling clarified the legislative intent behind sub-sections (3), (4), and (5) of Section 37, emphasizing the exclusion of expenses related to accommodation in the nature of a guest house. In light of this authoritative interpretation, the High Court answered both questions of law in favor of the Revenue, overturning the decisions of the first appellate authority and the Tribunal. Consequently, the assessing officer's order on the issue was reinstated, and the Income Tax Appeal was allowed accordingly.