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TMI Blog1986 (2) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commis- sioner (Appeals) erred in upholding the disallowance of ₹ 1,24,788 being expenses incurred by the company on transit flats at Bombay and New Delhi. The assessee-company maintained three guest houses, two at Delhi and one at Bombay. The two guest houses at Delhi are at Vasant Vihar and at Prithviraj Road. The guest house at Bombay is in the building known as Usha Kiran on Altamount Road. There is no expenditure during the previous year so far as the guest house at Vasant Vihar at New Delhi is concerned. The total expenditure incurred for the remaining two guest houses coming to the assessee s share worked out to ₹ 1,29,788. The ITO has disallowed the claim for deduction following his order for the assessment years 1976-77 and 1977-78 The issue has been considered by the Commissioner (Appeals) in paragraph 5 of his order. Observing that his predecessor had confirmed the disallowance, under similar circumstances, he has confirmed the disallowance for this year also even though two orders of the Tribunal, one from Bombay and the other from Calcutta, were placed before him where a contrary view was taken. 3. Fairly admitting that the Tribunal has, for el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tour for the purpose of the assessee s business only. For the purpose of contending that in these circumstances, the establishments are not guest houses, the counsel has adopted the arguments advanced by Shri Doshi. 5. Shri B.C. Mehta, who is appearing for Bhavana Chemicals Ltd., has invited our attention to a Special Bench order of the Tribunal in the case of ITO v. Kothari (Madras) Ltd. [1985] SOT 432 (Mad.) for the purpose of saying that sub-section (5) of section 37 is applicable to the proceedings for the assessment year 1979-80 and onwards only. The facts in this case are stated to be that the assessee s factory is in a suburb of Baroda which is about 7 kms. from the city. The guest house is in the city. A register is stated to have been maintained and it is stated that the expenditure in the earlier years was allowed by the ITO himself and that in this year it has been allowed by the Commissioner (Appeals). The total expenditure is claimed to be ₹ 36,471. 6. Shri K.K. Tuli, the senior departmental representative, has, on the other hand, strongly relied on the Tribunal s order in the assessee s own case for the earlier years. As regards section 37(5), it is admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... friends of the directors or outsiders. It is on the abovestated facts we have to decide whether the two residential accommodations maintained by the assessee would be guest houses within the meaning of section 37(4). 9. The provisions of sub-section (5) have been inserted in section 37 by the Finance Act, with effect from 1-4-1979 and the sub-section begins with the expression For the removal of doubts . The first question that requires consideration is whether sub-section (5) is applicable for the assessment year 1978-79. It may be that when the Legislature uses the expression For the removal of doubts , it ordinarily means that the legislative inten-tion has all along been the same and that the new provision has been introduced to clarify the position. This would only mean that an adverse inference cannot be drawn from the absence of such a provision earlier. However, what the earlier provision, i.e., section 37(4), really meant will have to be decided on the basis of the language used in the provision. In the present case, even an adverse inference may be justified as the Legislature has not stopped by merely stating that the provisions of sub-section (5) are for the remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above two decisions by observing that the decisions largely relied on the language of rule 6C which has since been deleted. It was held that after the introduc- tion of sub-section (4) in section 37 and the deletion of rule 6C, the allowance is limited to the expenditure in relation to the guest house in the nature of a holiday home on the conditions laid down in the second proviso to sub-section (4). On behalf of the department it was urged that the only decision on the interpretation of the expression residential accommodation in the nature of a guest house as used in section 37(4) being that of the Karnataka High Court, we are bound to follow this decision in view of the Bombay High Court decision in the case of Godavaridevi Saraf (supra). 12. It is true that the expression any residential accommodation or accommodation in the nature of a guest house as used in section 37(3) had come up for consideration before the Madras and Punjab and Haryana High Courts in the cases supra. However, the manner in which their Lordships of the Madras High Court have referred to rule 6C, it is doubtful whether they have derived any support from the Rules. In our view the observations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eletion of rule 6C, the only expenditure that can be allowed in respect of a guest house is the one which is covered by the second proviso to section 37(4), i.e., for a holiday home under specified conditions. To our mind, this argument cannot be accepted. The second proviso to section 37(4) only provides that section 37(4) will not apply to cases covered by the second proviso. The question whether or not a residential accommodation is or is not in the nature of a guest house will have to be decided independently with reference to the provisions of section 37(4). This is what has been done by us above. 15. We now dispose of other grounds in the assessee s appeal. The first ground in the assessee s appeal is : For that on the facts and in the circumstances of the case, the Commissioner (Appeals) erred in not deciding the ground preferred by the appellant in regard to the disallowance of ₹ 85,501 under section 40(c)( i) and (ii ) of the Income-tax Act, being ground No. 2 of the appeal. The ground has not been considered by the Commissioner (Appeals). In response to a query from the Bench it has been fairly conceded that a Special Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in its order in IAC v. Mercantile Bank Ltd. [1984] 7 ITD 198 (Bom.). The departmental representative has relied on the order of the ITO. There being no fresh arguments, following the orders supra of the Tribunal, we hold that the inclusion of telephohe expenses and flat maintenance expenses for the purpose of computing the disallowance under section 40(c) are not justified. 18. The last effective ground in the assessee s appeal is : For that on the facts and in the circumstances of the case, the Commissioner (Appeals) erred in upholding the disallowance of ₹ 8,000 in transport and hotel expenses. The department has also come up in appeal in this regard. Their ground is as under : That the Commissioner (Appeals) is not legally justified in restricting the disallowance under the head Transport and hotel expenses in absence of prescribed particulars required under rule 6D(2). The total of the travelling expenses incurred by the assessee during the previous year amounted to ₹ 2,37,131. Observing that the assessee has not maintained proper details of each tour undertaken by the officers, the ITO disallowed a sum of ₹ 23,717 being 10 per cent of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsformers and other stationary plant and wiring and fittings of electric light and fan installations. It is stated that the generator including diesel generator is an electrical machinery and does not, therefore, qualify for extra shift allowance. Shri Doshi has, on the other hand, invited our attention to two orders of the Tribunal, at pages 34 and 38 of the paper book, for the purpose of showing that the generator sets are more basic than electrical machinery envisaged in the above Schedule and that, therefore, the bar to extra shift allowance is not applicable to the generator sets. 22. We have considered the rival contentions. It is pertinent to mention that in response to a query from the Bench Shri Doshi admitted that depreciation at the rate of 10 per cent was allowed on the generating sets. However, this fact by itself does not deprive the assessee of its claim for extra shift allowance. The short question that requires consideration is whether the diesel generating sets are electrical machineries of the type envisaged in the above Schedule. We need hardly mention that the words used herein are indicative of the type of machinery envisaged in this column. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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