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TMI Blog1998 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... t in holding that the assessee is entitled to depreciation on roads inside the factory ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled for the allowance of expenditure incurred on maintenance of circuit house and depreciation thereon ?" Tax Case No. 682 of 1987 : "Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 37(4) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding and had valid materials to hold that the circuit house maintained by the assessee was not a guest house and that the expenditure on such building and depreciation could not be disallowed under section 37(4)(i) of the Act ?" In this batch of tax cases referred at the instance of the Revenue, the common question that is involved is whether the circuit house maintained by the assessee cannot be regarded as a guest house within the meaning of section 37(4)(i) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"). In so far as the assessment years 1978-79 and 1979-80 are concerned, there is an additional question regarding the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 37(4) of the Act would not apply. The Tribunal, on the applications filed by the Revenue for various assessment years, stated a case and referred the common questions of law set out earlier. Mr. C. V. Rajan, learned counsel for the Revenue submitted that in view of the clear finding of the Appellate Tribunal, the accommodation is meant for strangers though they may visit Neyveli for business or non-business purposes, the accommodation should be regarded as guest house. Mr. S. A. Balasubramanian, learned counsel for the assessee, on the other hand, submitted that Neyveli is situate in a remote place in the State of Tamil Nadu and the assessee had to provide accommodation to those persons who come to transact business with the assessee and the accommodation provided cannot be regarded as guest house, in view of the remoteness of the place in which the industrial establishment is situate. He submitted that the assessee has also provided accommodation to its employees, and collected certain charges also from the persons who have come and stayed for the purpose of transacting business with the assessee. He, therefore, submitted that the accommodation cannot be regarded as gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineers and other Government officials who went there on duty and stayed there temporarily for doing duty. On the other hand, on the facts found by the Appellate Tribunal in the instant case, persons who are complete strangers came to occupy the accommodation at the time when they came to transact business with the assessee. A similar view were also taken by the Calcutta High Court in the case of CIT v. Orient Paper Mills Ltd. [1986] 171 ITR 181 and learned counsel for the assessee submitted that the facts are also similar as the accommodation was not maintained for entertainment or relaxation. We are of the opinion that the above decision of the Calcutta High Court is also not applicable as in the case before the Calcutta High Court the assessee had provided boarding and lodging facilities on payment of charges by the persons using the accommodation and the entire expenditure was recovered from the persons utilising the said accommodation. A similar view was also taken in another decision of the Calcutta High Court in the case of CIT v. Hindusthan Aluminium Corporation Ltd. [1989] 176 ITR 206. Learned counsel for the assessee also brought to our attention an order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and the expenditure incurred on the accommodation might have been incurred on commercial expediency and allowable as a business expenditure, but for the prohibition imposed by the statute against the allowance. The purpose of section 37 of the Act is to regulate the deduction of such business expenditure and if the accommodation is merely provided to a stranger who came and stayed there for his personal use or his personal recreation, the amount claimed may not be allowable as business expenditure. The object behind it is to regulate the allowance of the expenditure incurred on the guest house, and unless it falls within the scope of business expenditure ; there is no question of any Allowance of the same. In our opinion, except those categories of persons enumerated in the judgment of this court in Aruna Sugars Ltd.'s case [1980] 123 ITR 619, if the accommodation is maintained for other persons, the accommodation should be regarded as guest house. The decision of this court in Aruna Sugars Ltd.'s case [1980] 123 ITR 619 also makes it clear that it is the duty of the assessee to produce the register maintained under rule 6C of the Income-tax Rules before the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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