Raja Bahadur Motilal Poona Mills Ltd. v. Commissioner Of Income-Tax.

S.M Jhunjhunuwala, J.:— By this reference made under section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court for opinion at the instance of the assessee:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses of Rs. 21,951, Rs. 17,601 and Rs. 9,273, respectively, for 1970–71, 1971–72 and 1972–73 assessment years related to the maintenance of residential accommodation in the nature of a guest house within the meaning of section 37(3)/37(4) of the Income-tax Act, 1961?”

2. In this reference, the controversy pertains to the assessment years 1970–71, 1971–72 and 1972–73, the relevant previous years ending on. December 31, 1969, December 31, 1970, and December 31, 1971, respectively.

3. So far as the assessment year 1970–71 is concerned, the unamended section 37(3) of the Income-tax Act applied, which at the material time, read as under:

“Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, 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. By Act 19 of 1970, section 37(4) was inserted in section 37 with effect from April 1, 1970, which reads as under:

“Notwithstanding anything contained in sub-section (1) or sub-section (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 hereafter in this sub-section referred to as ‘guest house’);

(ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in a guest house.”

5. As per section 37(4)(i.) of the Act, no allowance shall be made in respect of any expenditure incurred by an assessee on maintenance of any residential accommodation in the nature of a guest house after February 28, 1970.

6. Accordingly, for the assessment year 1970–71, the assessee is entitled for the expenditure incurred on the maintenance of the guest house in accordance with section 37(3) of the Act.

7. As regards the expenditure incurred for maintenance of the residential accommodation in the nature of a guest house for the assessment years 1971–72 and 1972–73, the controversy is squarely covered by our judgment in Commissioner Of Income-Tax v. Ocean Carriers Pvt. Ltd., [1995] 211 ITR 357 (Income-tax Reference No. 335 of 1983) delivered on November 15, 1994. In view thereof, for the assessment years 1971–72 and 1972–73, the question is answered in the affirmative and in favour of the Revenue.

8. The reference is, accordingly, disposed of.

9. No order as to costs.