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TMI Blog1997 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... of lunch, etc., to the visiting officials. The break up sum of Rs. 17,940 comprises the following items : "1. Rs. 5,716 on the purchase of coffee and tiffin for supply to the visitors to the factory ; 2. Rs. 7,973 on the purchase of provisions obtained for supply for meals and tiffin prepared in the guest house ; 3. Rs. 782 as wages to the cook etc. 4. Rs. 3,469 on the maintenance of the guest house accommodation like placement of wiring, etc." The Income-tax Officer rejected the claim of the assessee on the ground that the entire sum of Rs. 17,940 should be treated as guest house expenditure and not allowable under the provisions of sub-section (4) of section 37 of the Act. The Commissioner of Income-tax (Appeals) on appeal, preferred by the assessee accepted the claim of the assessee and held that the expenditure could neither be regarded as guest house expenditure nor entertainment expenditure. Therefore, the entire amount was held to be liable to be deducted in the computation of the business income of the assessee. The Income-tax Appellate Tribunal in the appeal preferred by the Revenue, following its earlier order in the case of New Horizon Sugar Mills Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intenance expenditure of the guest house or will it include the expenditure incurred towards the purchase of provisions for supply of refreshments to the guests staying in the guest house. The object behind the introduction of the provisions of section 37(4) of the Act is to curb the lavish expenditure incurred by the assessee on the maintenance of the guest house. In the absence of any such provisions like section 37(4) of the Act, the expenditure incurred on the guest house was allowable as a normal business expenditure. Yet, the Legislature has stepped in and declared that the expenditure incurred on the maintenance of the guest house is not allowable as a business expenditure. The mandate of the provisions of section 37(4) of the Act is very clear. It desires to curb the expenditure incurred on the guest house. Viewed in the light of the object behind the introduction of the provisions of sub-section (4) of section 37 of the Act, we are of the view that the expression "on the maintenance of any residential accommodation in the nature of a guest house" should be given a wider meaning and it cannot be construed in a narrow or restricted manner. We are of the view that if such a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have been unnecessary. Hence, it is not possible to accede to the submission made for the Revenue that sub-section (3) of section 37 of the Act only covers any residential accommodation and not food and other amenities provided in a guest house." The above decision of the Karnataka High Court was followed by the Punjab and Haryana High Court in the case of Saraswati Industrial Syndicate Ltd. v. CIT [1982] 136 ITR 361. The Punjab and Haryana High Court, following the decision of the Karnataka High Court cited above, held that it would be quite logical and reasonable to hold that the expression "maintenance of a guest house" would comprehend not only the maintenance expenditure but also other expenditure incurred towards food and other amenities. The Calcutta High Court had an occasion to consider the provisions of sub-section (4) of section 37 of the Act in Kanoria Chemicals and Industries Ltd. v. CIT [1995] 78 Taxmann 455. The learned judge speaking for the Bench held that the term maintenance of a guest house will include the provisions for food, drinks and also lodging and if the assessee provides residential accommodation to the guests and also food and drinks and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is seen on the facts of the decision of the Delhi High Court, the guest house only belonged to another company and the guests of the assessee-company used to stay in the guest house belonging to other company and half of the expenditure on its maintenance was reimbursed by the assessee. The Delhi High Court in that context held that the amount spent towards the cost of food and current repairs of the company cannot be regarded as the expenditure incurred on the maintenance of guest house. We are of the view that the facts here are entirely different, as the assessee was maintaining a guest house of its own and there is no question of any expenditure incurred by it towards reimbursement of somebody's expenditure towards the maintenance of any guest house. It is no doubt true that the Delhi High Court has taken the view that the provisions for food and refreshment are expenditure incurred on the guests directly and cannot be regarded as expenditure relating to the maintenance of a guest-house. However, we are of the view that if such an interpretation is given to the expression, "on the maintenance of any residential accommodation in the nature of a guest house" it will really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope of section 37(4) of the Act. In so far as the second item of expenditure is concerned, it is really a guest house expenditure as it was incurred for the purchase of the provisions for supply of meals and tiffin for the guests staying in the guest house. In the light of the principles of law laid down earlier, the second item would squarely come within the mischief of section 37(4) of the Act. The third and fourth items actually relate to the maintenance of guest house and they were not incurred on the purchase of the provision but for the maintenance of guest house itself. Therefore, we are of the view that the items covered in items Nos. 3 and 4 would squarely come within the ambit of section 37(4) of the Act. Consequently, we uphold the order of the Appellate Tribunal as regards the first item of expenditure, namely, purchase of coffee and tiffin for supply to visitors to the factory, but we hold that the rest of the items are liable to be regarded as expenses incurred on the maintenance of guest house maintained by the assessee and they are not allowable in the computation of the business income of the assessee. Accordingly, we answer the question of law as under: T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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