TMI Blog1991 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year under reference, the assessee had incurred a total expenditure of Rs. 17,687 in providing messing facilities to its employees who came to Bilimora from Bombay. The assessee claimed deduction of the said expenditure as business expenditure. The Income-tax Officer held that the said expenditure which the assessee had incurred was for the purpose of business. He, however, held that deduction of the said expenditure was not allowable in view of the specific provisions of subsections (2B) and (3) of section 37 of the Income-tax Act, 1961 ("the Act" for short). According to the Income-tax Officer, no expenditure for maintenance of guest house was allowable under section 37(3). He held that the entire expenditure of Rs. 17,687 was nothing but expenditure incurred for the maintenance of residential accommodation and, therefore, the assessee's claim for its deduction could not be allowed under section 37(3) of the Act. The Income-tax Officer further held that, under subsection (4) of section 37, depreciation on the said residential accommodation was also not allowable. There was no separate written down value for the portion of the factory premises used as residential accomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject to fulfilment of certain conditions prescribed by the Rules. Since it was not the case of the Revenue that the conditions laid down by the rules were not fulfilled, the expenditure incurred by the assessee for the guest house up to February was allowable as deduction. So far as expenditure for guest house incurred after February 28, 1970, was concerned, the Tribunal held that, having regard to the dictionary meanings of "guest" and "guest house", the residential accommodation maintained by the assessee at Bilimora could not be termed as guest house. Therefore, in the opinion of the Tribunal, section 37(4) of the Act could not act as a bar to the allowance of the expenditure as claimed by the assessee. The Tribunal held that the deduction of the entire expenditure was allowable under section 37(1) of the Act. The Tribunal held that, as a consequence, depreciation also could not be disallowed because the provisions of section 37(4)(ii) would not be applicable to the instant case. In this view of the matter, the Tribunal confirmed the order of the Appellate Assistant Commissioner allowing the claim of the assessee. Being aggrieved by the order of the Tribunal, the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) of sub-section (4) of section 37 of the Act. The further question which arises for our consideration is whether depreciation in respect of residential accommodation or guest house maintained by the assessee is disallowable under clause (ii) of section 37(4). Sub-sections (3) and (4) of section 37, as they stood at the relevant time, read as follows : "37(3). Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1954, on advertisement or on maintenance of any residential accommodation, including any accommodation in the nature of a guest house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed. (4) Notwithstanding anything contained in sub-section (1) or subsection (3), (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest house (such residential accommodation being her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture which has been incurred prior to February 28, 1970, could be disallowed under subsection (4) of section 37. In our opinion, so far as expenditure of Rs. 17,687 is concerned, it is not incurred for maintenance of any residential accommodation. This expenditure, as already indicated above, has been incurred for providing messing facilities to the employees of the assessee. No part of this expenditure having been incurred for maintenance of any residential accommodation, there is no question of disallowing any part thereof under sub-section (3) of section 37. The question of allowing deduction of expenditure to the extent to which the prescribed conditions are fulfilled would arise only if the expenditure is incurred for the maintenance of residential accommodation. It is, therefore, not necessary to consider whether or not the conditions prescribed by the rules were fulfilled for the purpose of allowing the expenditure of Rs. 17,687. In our opinion, sub-section (3) of section 37 has no application to the facts of the instant case. For the same reasons, since the said expenditure is not incurred for the maintenance of any residential accommodation, the question of disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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