INCOME TAX ACT, 1961

Business disallowance under section 37(4)- Guest house expenditure-Rent, repairs and maintenance

Assessee-company claimed deduction of expenses towards rent, repairs, depreciation and maintenance of a guest house used in connection with the business of the company for the assessment year. AO disallowed the same.The assessee submitted that since the expenditure incurred toward rents, rates, taxes, repairs and insurance of buildings and premises and furniture used for the purposes of business or profession, have been specifically allowed to be deducted in sections 30, 31 and 32, benefits thereof could not be denied to the assessee by including the expression 'residential accommodation including any accommodation in the nature of a guest house' in section 37(3). Held:Although, the expression premises used for the purposes of the business or profession has been used along with the expression buildings and furniture under sections 30, 31 and 32, for the first time, the expression residential accommodation including any accommodation in the nature of a guest house has been used in section 37(3). Section 37(3) indicates that notwithstanding anything contained in sub-section (1) any expenditure incurred by an assessee after 31-3-1964, on maintenance of any residential accommodation in the nature of a guest house and hotel expenses, would be allowed only to the extent and subject to such conditions, if any, as may be prescribed. When the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give it a meaning which would cause violence to the provisions of the statute. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession, then it would not have felt the need to amend the provisions of section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in section 37(5) and the provisions of section 31 and 32 would have been sufficient for the said purpose.

Income Tax Act, 1961 Section 37(4) read with sections 37(3) and 37(5)

Case Law Analysis:Referred:CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 / 42 Taxman 142 (Bom.) [Para 11.3], Century Spg. & Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660/[1992] 60 Taxman 168 (Bom.) [Para 11.4], CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1992] 197 ITR 538 /[1993] 70 Taxman 223 (Guj.) [Para 12], CIT v. Travancore Cements Ltd. [1999] 240 ITR 816 /[2000] 108 Taxman 313 (Ker.) (FB) [Para 12.1], CIT v. SouthIndia Viscose Ltd. [2003] 259 ITR 107 (Mad.) [Para 12.2], Kesoram Industries & Cotton Mills Ltd. v. CIT [1991]191 ITR 518 (Cal.) [Para 12.3], CIT v. Upper Ganges Sugar Mills Ltd. [1994] 206 ITR 215 / 72 Taxman 37 (Cal.) [Para 12.3], CIT v. Instrumentation Ltd. [2002] 258 ITR 513 / 124 Taxman 754 (Raj.) [Para 14], CIT v.Mathurantakam Co-operative Sugar Mills Ltd. [2000] 241 ITR 817/[1999] 106 Taxman 267 (Mad.) [Para 15] and CIT v. Biswanath Tea Co. Ltd. [2003] 264 ITR 166 (Cal.) [Para 16].

Decision: In favour of Revenue.
A.Y. 1994-95