High Court Of Karnataka
CIT & ANR. vs. IBM India Ltd.
Section 37(4), 37(5)
Asst. Year 1996-97
K.L. Manjunath & Mrs. B.V. Nagarathna, JJ.
IT Appeal No. 142 of 2005
25th February, 2010
Counsel appeared :
M.V. Seshachala, for the Appellants : Smt. Vani, for the Respondent
K.L. Manjunath, J. :
The Revenue has come up in this appeal challenging the order passed by the CIT(A), Bangalore, which has been confirmed by the Tribunal, Bangalore, in ITA No. 683/Bang/2000, dt. 28th May, 2004 raising the following substantial question of law : “Whether the appellate authorities were correct in holding that transit house maintenance expense is an allowable deduction despite the AO having held that the same was a guest house expense which was not allowable under ss. 37(4) and 37(5) of the Act ?”
2. The facts leading to this appeal are as hereunder : The assessee-company filed its return of income for the asst. yr. 1996-97. In the return of income it claimed a deduction of Rs. 10,61,253 being the expenses incurred by it in respect of the transit accommodation provided to its employees. Contending that the transitory accommodation claimed by the assessee is more in the nature of a guest house, the claim of the assessee was disallowed. Being aggrieved by the order of assessment, the assessee filed an appeal before the CIT(A) which appeal came to be allowed in respect of the claim made in respect of addition of Rs. 10,61,253 made by the assessee in respect of expenditure incurred by it for the maintenance of transit accommodation to its employees. Being aggrieved by the order of the CIT(A), Bangalore, dt. 31st July, 2000, the Revenue preferred an appeal before the Tribunal, Bangalore. The Tribunal also concurred with the views of the CIT(A). Accordingly, the appeal was dismissed. Being aggrieved by the concurrent findings of the orders passed by the CIT(A) and the Tribunal, the present appeal is filed.
3. The main contention of the appellant before us is that the expenses incurred by the assessee to maintain the transit accommodation has been considered by the CIT(A) and the Tribunal as it falls under s. 37(4) and (5) of the IT Act and such accommodation ought to be treated as guest house expenditure. Relying upon the judgment of the Supreme Court in Britannia Industries Ltd. vs. CIT & Anr. (2005) 198 CTR (SC) 313 : (2005) 278 ITR 546 (SC), the learned counsel for the Revenue contends that the expression guest house includes the residential accommodation. Therefore, any expenditure incurred by the assessee towards the maintenance of the transit residential house has to be treated as a guest house and not liable for deduction. Therefore, he requests this Court to set aside the orders passed by the CIT(A) and the Tribunal by answering the question of law in favour of the Revenue.
4. Per contra, the learned counsel for the assessee, contends that the premises maintained by the assessee as a transitory accommodation to its employees cannot be equated as a guest house and that the respondent-assessee is not maintaining the transitory accommodation to entertain the guest and it is also her contention that such residential premises are also not used as a holiday home in order to distinguish the premises as a guest house or holiday home. Therefore, she contends that the CIT(A) as well as the Tribunal were justified in not considering the grievance of the Revenue and they have rightly rejected the contentions of the Revenue. In the circumstance, she requests the Court to dismiss the appeal.
5. Having heard the counsel for the parties, we have to consider whether the residential premises maintained by the assessee falls within the definition of a guest house or a holiday home as contemplated under s. 37(4) and (5) of the IT Act. If the premises maintained by the respondentassessee falls within the category of guest house or a holiday home, then this Court has to answer the question of law in favour of the Revenue and if the premises falls under a different category, then, in such circumstance, the appeal has to be rejected.
6. In order to appreciate the case of the parties, it would be appropriate to consider the provisions of s. 37(4) and (5) of the IT Act as it was earlier : “(4) Notwithstanding anything contained in sub-s. (1) or sub-s. (3)â (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 : Provided that the aggregate of the expenditure referred to in cl. (i) and the amount of any depreciation referred to in cl. (ii) shall, for the purposes of this sub-section be reduced by the amount, if any, received from persons using the guest house : Provided further that nothing in this sub-section shall apply in relation to any guest house maintained as a holiday home if such guest houseâ (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. (5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated is accommodation in the nature of a guest house within the meaning of sub-s. (4).”
If we consider s. 37(4) of the Act, if the premises is used as a guest house or a holiday home and in view of the judgment of the apex Court in Britannia Industries Ltd. vs. CIT & Anr. (supra), we have to hold that the assessee is not liable to seek deduction in respect of any expenditure incurred for the maintenance of the residential accommodation in the nature of guest house. Now, the contention of the assessee before us is that it is a transitional accommodation provided to its employees and therefore, such premises cannot be categorised as a guest house and holiday home and therefore, the assessee is entitled to seek deduction. In order to appreciate how the premises in question is being used has to be considered by us in order to consider the case of the assessee whether it would fall under s. 37(5) of the IT Act or not ? Upon reading of sub-s. (5) of s. 37 of the IT Act, it is clear to us that even if an employee on tour or visit to a place, at which such accommodation is situated, has to be treated as a guest house within the meaning of sub-s. (5) of s. 37 of the Act. When the provision of law is very clear that, if any lodging or boarding to an employee of the assessee is provided by the assessee either such employee is on tour or visit to a place at which such accommodation is situated and if such accommodation is used by an employee, the same has to be treated as a guest house only even though the assessee calls it as a transitory accommodation. By mere changing the nature of nomenclature, the actual use of the accommodation cannot be taken away in order to get the benefit under the provisions of s. 37 of the IT Act. This aspect of the matter is neither considered by the CIT(A) or by the Tribunal.
The learned counsel for the respondent-assessee relying upon the judgment of the Bombay High Court in Greaves Cotton & Co. Ltd. vs. CIT (2006) 201 CTR (Bom) 544 : (2005) 279 ITR 42 (Bom), contends that even s. 37(5) of the IT Act, has been considered by the Bombay High Court and relief has been granted to the assessee holding that such premises cannot be treated as a guest house. We have gone through the aforesaid judgment in detail. Though a reference is made to provisions of sub-s. (5) of s. 37 of the Act, their Lordships have not considered the provisions of sub-s. (5) of s. 37 in detail. They have only referred that sub-s. (5) of s. 37 of the IT Act has been inserted under the Finance Act, 1983 with retrospective effect from April, 1979, but they have not considered how s. 37(5) of the IT Act would not attract and if such premises are used as and when the employees of the assessee visit the place of business and use the accommodation provided by the assessee in order to hold that expenses incurred for such accommodation is an allowable deduction. According to us, the provisions of s. 37(5) of the IT Act have not been fully considered by the Bombay High Court except making reference in the course of the judgment. In the circumstances, we are of the view that the judgment relied upon the assessee is of no application. In view of our discussion, we are of the view that the question of law raised by the Revenue has to be answered in favour of the Revenue and against the assessee. Accordingly, the appeal is allowed.
[Citation : 326 ITR 170]