The Commissioner of Income Tax, Cochin vs M/s. Forbes, Ewart and Figgis (P) Ltd., Cochin-3

K. Vinod Chandran, J.—The Revenue is in appeal, raising the following questions of law:

i) Whether, on the facts and in the circumstances of the case the Tribunal is right in law in confirming the order of the CIT (A) directing the assessing officer to allow guest house expenses incurred by the assessee and depreciation on guest house as claimed by the assessee?

ii) Whether, on the facts and in the circumstances of the case and also in the light of sub-section (5) of Section 37, the Tribunal is justified in law in interfering with the order of the assessing authority with reference to guest house issue/guest house expenditure?

Essentially the issue raised in the appeal is regarding the order of the first appellate authority, as confirmed by the Tribunal, allowing the claim of the assessee that the amounts spent for maintaining residential accommodation at Madras and Coimbatore were allowable as expenditure incurred towards payment of rent u/s 37 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The claim of the assessee was that the apartments at Madras and Coimbatore were kept ready for stay by the touring officers of the assessee due to the difficulties faced by such officers to get accommodation in those cities. The first appellate authority allowed the claim of the assessee relying on the decision of the Bombay High Court in Commissioner of Income Tax Vs. Chase Bright Steel Ltd. (No. 1), .

The Tribunal relied on a decision of the Calcutta High Court, reported in Commissioner of Income Tax Vs. Parshva Properties Ltd., , wherein a bungalow situated in a remote corner kept ready for the employees of the company, auditors, etc. was held to be not liable to be treated as a guest house u/s 37(4) of the Act.

Due to the conflicting decisions of the various High Courts, the said issue had engaged the attention of the Hon''ble Supreme Court in Britannia Industries Ltd. Vs. Commissioner of Income Tax, West Bengal, Kolkata and Another, . The Hon''ble Supreme Court disagreed with the Bombay High Court judgment above cited and found favour with the ratio Decidendi of Calcutta High Court judgments; delivered after the decision of that Court cited by the Tribunal. The Supreme Court held that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37. Respectfully following the above decision, we answer both the questions of law framed by the Revenue in favour of the Revenue and against the assessee. In such circumstances, the order of the assessing officer on the aforesaid issue is restored, setting aside the orders of the first appellate authority, as confirmed by the Tribunal.

The Income Tax Appeal is allowed as above.