1983 (11) TMI 18

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....ture in maintaining the flats in Bombay and Delhi was disallowable under section 37(4) of the Income-tax Act, 1961 ? " The assessee is a public limited company. For the assessment years 1973-74 to 1975-76, it claimed deduction of expenses incurred in relation to the maintenance of two flats, one in Delhi and another in Bombay, The ITO disallowed the claim in view of the provisions of s. 37(4) of the Act. The deduction disallowed was affirmed by the AAC and also by the Appellate Tribunal. The short question that arises for consideration is, whether s. 37(4) of the Act is a bar to claim the expenditure incurred in the maintenance of these flats. Section 37 of the Act is the residuary and general provision extending the allowances to ....

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....-house, (First proviso omitted) Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guesthouse- (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave." Before s. 37 was inserted into the Act, r. 6C of I.T. Rules, 1962, provided for allowance of expenditure on maintenance of guest-house as provided in the said Rules. From a perusal of these provisions, one thing becomes clear that the Legislature deliberately omitted the provisions relating to expenditure incu....

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....odation is made available to strangers for their lodging or boarding, it cannot be considered as a guest-house. Since predominantly the employees of the company used to occupy the flats during their business tour, s. 37(4) is no bar for claiming the expenditure incurred in maintaining these flats. The learned counsel, in other words, wants us to hold that the flats generally occupied by or maintained for the employees of the assessee, must not be considered as guest-houses. In Aruna Sugars' case [1980] 123 ITR 619 (Mad) the Madras High Court, while considering the scope of s. 37(3) of the Act, observed that IC guest-house " must be understood to be a place for reception of strangers and if it is intended for the use of the employees of t....