2010 (4) TMI 296 - HC - Income Tax

Guest house expenses disallowance u/s 37(4) - 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 under Section 30 read with Section 32 or they are to be disallowed under Section 37(4) Held 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 - the question stand already decided in favour of the revenue and against the assessee.

Summary

Issues:
Challenge to disallowance of Guest House expenses under Income-tax Act, 1961.

Analysis:
The case involved an appeal challenging the disallowance of Guest House expenses under the Income-tax Act, 1961. The appellant sought to question whether the Tribunal was correct in disallowing the expenses amounting to Rs. 9,59,60 under Section 30 or if they should be disallowed under Section 37(4). The Assessing Officer disallowed the expenses primarily under Section 37(4), while the appellant claimed the benefit under Section 30. The CIT(A) allowed the appeal, but the Tribunal ruled against the appellant. The Tribunal referred to previous judgments, including the Kerala High Court's decision, which held that expenses on the maintenance of a guest house are not allowable under Section 30 after the introduction of subsections (4) and (5) of Section 37. The Tribunal also mentioned the Calcutta High Court's decision reinforcing the prohibition against allowing maintenance expenditure for a guest house. Consequently, the Tribunal set aside the CIT(A)'s order and restored that of the Assessing Officer.

The appellant's counsel argued that the issue had already been decided in favor of the revenue by the Supreme Court in the case of Britannia Industries Ltd. v. Commissioner of Income-tax. The counsel pointed out that the legislature's intention was to exclude expenses towards rents, repairs, and maintenance of premises used for a guest house, as indicated in Section 37(4). The counsel acknowledged the clear prohibition on allowing deductions for guest house maintenance expenses after the amendment to Section 37 in 1970. Therefore, the counsel conceded that the question had already been decided in favor of the revenue.

Given the arguments presented by the appellant's counsel and the acknowledgment of the issue being covered by the Supreme Court's judgment in Britannia Industries Ltd., the respondent's counsel simply requested the appeal's dismissal. Consequently, the question was decided against the appellant and in favor of the respondent.

In conclusion, the High Court upheld the Tribunal's decision to disallow the Guest House expenses under Section 37(4) of the Income-tax Act, 1961, based on previous judgments and the clear prohibition on allowing such deductions after the relevant legislative amendments.