Rama Jois, J.:— In accordance with the directions issued by this court in C.P No. 200 of 1974 under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), the following question of law has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Bangalore.

“Whether, on the facts and in the circumstances of the case, the guest house expenditure of Rs. 13,902 is an item of allowable expenditure falling under section 37(3) of the Income-tax Act, 1961?”

2. The assessee in this case is a limited company. In returns filed for the assessment year 1969–70, the assessee claimed exemption towards guest house expenditure amounting to Rs. 13,902 consisting of the following items:

Rs. (i) Provisions 8,901 (ii) Other expenditure 3,154 (iii) Equipments like crockery, utensils, etc., written off 1,847 Total 13,902

3. The ITO on going through the materials placed before him came to the conclusion that only customers of the assessee stayed in the guest house and, therefore, the deduction claimed by the assessee was not permissible under sub-s. (3) of s. 37 of the Act. In taking the said view he relied on r. 6C of the I.T Rules, 1962 (hereinafter referred to as “the Rules”), and held that the use of the guest house by a customer is not covered by the said rule and, according to the rule, expenses incurred on the guest house used only for the occupation of the employees could be claimed for purposes of deduction under s. 37(3) of the Act. Aggrieved by the said order the assessee preferred an appeal before the AAC. The AAC allowed the appeal holding that the entire expenditure of guest house being an expenditure wholly and exclusively for the purpose of business of the assessee, has to be deducted under sub-s. (1) of s. 37 of the Act. The department went up in appeal before the Income-tax Appellate Tribunal. The Tribunal disallowed the claim. The view taken by the Tribunal can be summarised as follows:

(1) The requirement of maintaining accounts under r. 6C(3) has no application to customers who use the guest house maintained in accordance with cls. (a), (b) and (c) of r. 6C(1) of the Rules.

(2) The requirement to maintain accounts under r. 6C(3) applies to the employees and others specified in that sub-rule.

(3) The expenditure incurred only in respect of accommodation falls within the purview of sub-s. (3) of s. 37 of the Act and not other expenses.

(4) Section 37(1) of the Act is not attracted as held by the AAC as guest house expenditure specifically falls under s. 37(3) of the Act.

4. The only question required to be answered in this reference is whether the expenses towards guest house as claimed by the assessee falls within the purview of sub-s. (3) of s. 37 of the Act. Sub-sections (1) and (3) of s. 37 read as follows:

“(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession’.

(3) 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.”

5. The combined effect of the two sub-sections is that any expenditure incurred by an assessee towards maintaining of any residential accommodation or including any accommodation in the nature of a guest house, though incurred wholly and exclusively for his business, allowance is permitted only to the extent, and subject to such conditions, if any, as may be prescribed. Rule 6C is the rule which incorporates certain conditions and restrictions as contemplated under sub-s. (3) of s. 37 of the Act. Clauses (a), (b) and. (c) of r. 6C prescribe the number of guest houses and the places where the guest house could be maintained by the assessee. Clause (d) of r. 6C provides that an assessee who maintains one or more guest houses at any place other than the places referred to in cls. (a), (b) and (c) for the purposes of the use of his employees while on leave is also entitled to claim deduction of the expenses towards maintenance of such guest houses. Proviso to the said clauses, however, restricts the use of such guest houses by employees drawing a salary not exceeding Rs. 1,000 per month. Clause (3) of r. 6C which is relevant reads as follows:

“(3) No allowance shall be made in respect of expenditure incurred on the maintenance of any residential accommodation in the nature of a guest house unless the assessee maintains a register showing the following particulars, namely:

(i) the name and address of every employee and, in the case of an assessee being a company, firm, an association of persons or a Hindu undivided family, also every director of the company, partner or member of the firm, association or family, as the case may be, who had stayed in the guest house;

(ii) whether his stay in the guest house was for the purposes of the business or profession of the assessee;

(iii) the date of his arrival at the guest house and the date of his departure therefrom;

(iv) the amount, if any, paid by him towards his lodging and boarding in the guest house.”

6. According to the above rule, even though a guest house is used for the benefit of employees or other persons permitted by the rule, unless the assessee concerned maintains the register showing the particulars as indicated in the above-said rule the expenditure towards guest house could not be allowed. In this case, the Tribunal has come to the conclusion, and in our opinion rightly, that the requirement of maintaining the register, as required under r. 6C(3) of the aforesaid Rules, does not apply to persons other than those referred to in that rule who use the guest house maintained in accordance with cls. (a), (b) and (c) of r. 6C(1). The Tribunal, however, took the view that the allowances towards expenditure permitted by sub-s. (3) of s. 37 of the Act is only in respect of residential accommodation and not towards any other expenses.

7. Sri K.S Ramabhadran, the learned counsel appearing for the assessee, contended that the aforesaid view taken by the Tribunal is untenable in view of the clear wordings of sub-s. (3) of 37 of the Act. He argued that the allowances permitted under sub-s. (3) of s. 37 of the Act is not only towards maintenance of residential accommodation but also towards the expenses required for the maintainance of a guest house such as expenses towards food or other equipment required for the maintenance of the guest house.

8. Sri S.R Rajasekhara Murthy, learned counsel appearing for the revenue, however, contended that the stress in sub-s. (3) is only on accommodation and this is clear from the use of words any residential accommodation including any accommodation in the nature of a guest house and, therefore, only expenses towards residential accommodation could be allowed under sub-s. (3) of s. 37 of the Act and not other expenses.

9. In our opinion, the use of the words “any residential accommodation including any accommodation in the nature of a guest house” on the other hand clearly indicates that the allowances permitted under sub-s. (3) of s. 37 of the Act are not only in respect of residential accommodation provided but also any accommodation in the nature of a “guest house” because the meaning of the word “guest house” as given in the Concise Oxford Dictionary is “superior boarding house” which necessarily includes providing of food and other facilities required for staying there. If the contention urged for the revenue is correct, the use of the words “any accommodation in the nature of guest house” in sub-s. (3) of s. 37 of the Act would be redundant, because the words “residential accommodation” take in any residential accommodation provided even in a guest house and separate mentioning of the words “any accommodation” in the nature of of a “guest house” would have been unnecessary. Hence, it is not possible to accede to the submission made for the revenue that sub-s. (3) of s. 37 of the Act only covers any residential accommodation and not food and other amenities provided in a guest house.

10. This view also receives support from the understanding of the provision by the rule-making authority. Sub-rule (4) of r. 6C provides that one of the items required to be entered in the register maintained under sub-r. (3) is the amount, if any, paid by the guest towards his lodging and boarding in the guest house. Sub-rule (4) of r. 6C of the Rules defines the words “guest house” as including accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eight-two days during the previous year. The above provisions also indicate that expenses towards food and other amenities are also included in the accommodation provided by an assessee in the nature of a guest house. For the reasons aforesaid, we are of the opinion that the allowances permitted under sub-s. (3) of s. 37 of Act are not only in respect of residential accommodation, but also in respect of accommodation in the nature of a guest house which would include expenses towards providing food and other amenities to the guests staying in such a guest house.

11. For the foregoing reason, we answer the question first mentioned, referred for our opinion, in the affirmative, in favour of the assessee.