Gujarat H.C : Whether, on the facts and in the circumstances of the case, the assessee is entitled in law to the allowance of Rs. 2,33,300, being royalty paid to M/s Mettur Beardsell Ltd. as claimed ?

Counsel Appeared : Manish J. Shah, for the Petitioner : M.R. Bhatt, for the Respondent

JUDGMENT

D.M. DHARMADHIKARI, C.J. :

In the case of the present assessee for the asst. yr. 1978-79, the following question of law under s. 256(1) of the IT Act, 1961, have been referred to us for answer :

(i) Whether, on the facts and in the circumstances of the case, the assessee is entitled in law to the allowance of Rs. 2,33,300, being royalty paid to M/s Mettur Beardsell Ltd. as claimed ?

(ii) Whether, on the facts and in the circumstances of the case, the assessee is entitled to allowance of Rs. 7,771 being reimbursement of medical expenses paid to Managing Director ?

(iii) Whether the Tribunal has been right in law in sustaining the deletion of disallowance of Rs. 8,969 in respect of guest house expenses and directing allowance of depreciation on dead stock and furniture ?

2. Learned counsel appearing for the Department [sic-Assessee] and the Department submit that question No. 1 has been squarely covered by the decision of this Court in the case of CIT vs. Ashoka Mills (1996) 131 CTR (Guj) 1 : (1996) 218 ITR 526 (Guj) : TC S16.1736. It was held that the process employed under the trade name ‘Tebilized’ conferring an anti-crease property on the cloth for the purpose of making the cloth more marketable and profitable did not create any asset. Since it enabled the assessee to confer on the product the advantage of better quality and marketability, as revenue expenditure, it is deductible under s. 43A (sic) of the Act. Relying on the aforesaid decision in case of Ashoka Mills (supra), the question is answered in favour of the assessee.

3. Learned counsel appearing for the parties state that question No. 2 is squarely covered against the assessee by the decision of this Court in the case of CIT vs. Raipur Manufacturing Co. (1996) 132 CTR (Guj) 63 : (1996) 231 ITR 598 (Guj) : TC S16.1738. It was held that the sum paid to the Managing Director for reimbursement of medical expenses was to be included while computing the disallowance under s. 40(c) of the IT Act.

4. The third question is said to have been squarely covered by the decision of this Court in CIT vs. Gaekwar Mills Ltd. (1991) 99 CTR (Guj) 19 : (1992) 193 ITR 734 (Guj) : TC 17R.1468. The question with regard to deletion of disallowance of Rs. 8,969 in respect of guest house expenditure, etc. has to be answered in favour of the assessee. But so far as allowance of depreciation on dead stock and furniture is concerned, relying on the same judgment (supra), the question has to be answered against the assessee. In the case of Gaekwar Mills (supra), it has been held that residential accommodation maintained in the nature of guest house was covered within the meaning of cl. (i) of s. 37(4) of the Act. The expenditure has not been incurred for maintenance of residential accommodation but for the guest house and therefore, no part of such expenditure can be disallowed under s. 37(4)(i) of the Act. The guest house expenses, therefore, have to be allowed to the assessee.

5. So far as allowance claimed for depreciation for dead stock and furniture in the guest house in concerned, it was held that residential accommodation being in the nature of guest house within the meaning of cl. (i) of s. 37(4), depreciation to that part of the building of the assessee used as guest house is not allowable under cl. (i) of s. 37(4) of the Act. In the result, question No. 1 is answered in favour of the assessee and against the Revenue. Question No. 2 is answered against the assessee and in favour of the Revenue. Part of question No. 3 with regard to guest house expenditure is answered in favour of the assessee and against the Revenue, but so far as the last part of question No. 3 with regard to claim for allowance for depreciation on the dead stock and furniture of guest house is concerned, the same is answered against the assessee and in favour of the Revenue. Reference is answered accordingly, but with no order as to costs.

[Citation : 248 ITR 187]