National Newsprint and Paper Mills Ltd. vs Commissioner of Income Tax

A. K. Mathur, C. J.

This is a reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the assessee and the following question of law has been referred by the Tribunal for answer of this court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in disallowing the expenditure of Rs. 2,90,659 u/s 37(4) of the Income Tax Act, 1961, which was incurred by the assessee on the residential accommodation maintained by it in its industrial township for the stay of persons connected with the business ?"

The assessee is a public sector undertaking and it carries on the business of manufacturing and sale of newsprint. It has its factory and registered office at Nepanagar. During the year under consideration, the assessee had maintained residential accommodation in its industrial township at Nepanagar and also at Delhi and expenditure of Rs. 2,90,659 was incurred on the maintenance of these accommodations. This expenditure was disallowed by the Assessing Officer u/s 37(4) of the Income Tax Act, 1961, and the same was confirmed by the Commissioner of Income Tax (Appeals), and thereafter, in second appeal, the Tribunal also confirmed the disallowance.

The assessee aggrieved by the order of the Tribunal, approached the Tribunal for making reference before this court and, accordingly, the Tribunal referred the aforesaid question of law for opinion of this court.

Without going into the merits of the case, suffice it to say that a complete answer is provided u/s 37(4) of the Act which says that after the February 28, 1970, expenses on the maintenance of any residential accommodation in the nature of a guest house will not be allowable. Sub-section (4) of Section 37 of the Act starts with a non-obstante clause contained in Sub-section (1) or Sub-section (3). Therefore it is clear that no expenditure made on the maintenance of a guest-house is allowable. Hence, in this view of the matter, the view taken by the Tribunal is justified and we answer the aforesaid question in favour of the Revenue and against the assessee.