Business room expense allowed as deduction where premises were used for discussions and incidental hospitality, not as a guest house.

A small room used for business discussions, negotiations and incidental hospitality with visiting business principals was not a guest house in the true sense. Expenditure on the premises was incurred wholly for business purposes and business exigency, so it did not fall within the disallowance for guest house expenses. The amount was therefore allowable as a business deduction under section 37(1), and the disallowance was unsustainable.

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Issues: Whether expenditure incurred on a small room used for business talks and negotiations could be disallowed as guest house expenses under section 37(4) of the Income-tax Act, 1961, or allowed as a business deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The premises were found to be only a small room used for business discussions with visiting business principals and for incidental hospitality, and not a guest house in the true sense. Since the expenditure was incurred wholly for business purposes and business exigency, it did not fall within the mischief of section 37(4).

Conclusion: The expenditure was allowable as a deduction under section 37(1) of the Income-tax Act, 1961, and the disallowance was unsustainable.

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