TMI Blog1989 (12) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... as it occupied by any stranger. The assessee had however called it a guest house. In computing the income of the previous year ended 31-3-1984, corresponding to the assessment year 1984-85, the ITO disallowed the rent of Rs. 5,400 paid for this accommodation u/s. 37(4) of the Act. This was confirmed on appeal. 3. In the further appeal before us it was contended on behalf of the assessee that though it was called a guest house it was not a guest house at all since no stranger was allowed to stay in it as that is the characteristic of the guest house as held by the Madras High Court in the case of CIT v. Aruna Sugars Ltd. [1980] 123 ITR 619. It was submitted that the rent was an admissible deduction u/s. 30 and, therefore, no disallowance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng its employees are allowed depreciation u/s. 32. (See instructions given by the CBDT to its officers by Letter F. No. 9/26/IT/60 dated 21-3-1960, quoted in Sampath Iyengar's Law of Income-tax, 7th Edition, Vol. 2, page 1265). It has now been held by the Bombay High Court in the case of Chase Bright Steel Ltd. (No. 1) that the disallowance u/s. 37(4) can be made only with reference to the expenditure falling within the provisions of section 37 and not with reference to the expenditure admissible under section 30. 6. The revenue, therefore, relies on the sub-section (5) of section 37 which states that for the removal of doubts it is declared that any accommodation by whatever name called, hired for the purpose of providing lodging or boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b the expenditure on guest houses which were allowed to be maintained within the conditions prescribed in Rule 6C of the Income-tax Rules. The Finance Minister has stated : "Those who enjoy the hospitality of their business friends should now no longer find their sense of gratitude diminished by the thought that a part of the hospitality is really paid for by the Exchequer." (75 ITR St. 25) If we follow the purposive approach given in the case of CIT v. K.S. Vaidyanathan [1985] 153 ITR 11 (Mad.) (FB), we must confine the scope of sub-section (4) to the guest houses to which Rule 6C applied earlier. Since those guest houses did not fall within section 30 but were governed only by section 37 the embargo clearly applied. The sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of visitors would not cease to be one merely because it is also used for the stay of the employees or directors and not that a residential premises exclusively used for the employees and directors which is not a guest house at all would also be included within the scope of the dominant provisions of sub-section (4). In the circumstances we cannot but follow the decision of the Bombay High Court in the case of Chase Bright Steel Ltd. and hold that this expenditure being rent paid for accommodation for employees which is not a guest house is an admissible expenditure u/s. 30 and cannot, therefore, be disallowed u/s. 37(4) of the Act. The ITO is accordingly directed to allow this deduction and complete the assessment. 8. The appeal is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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