THE COMMISSIONER OF INCOME TAX,COCHIN vs. FORBES EWART & FIGGIS (P) LTD., COCHIN

PDF · subscribers
ITA/24/2002HC KeralaKLHC01020847200224 July 2012Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal in favour of the Revenue. The Court noted that the issue of guest house expenses had been considered by the Supreme Court in Britannia Industries Ltd. v. CIT, [2005] 278 ITR 546 (SC). The Supreme Court disagreed with the Bombay High Court's decision in CIT v. Chase Bright Steel Ltd. and found favour with the ratio of Calcutta High Court judgments. The Supreme Court held that the intention of the legislature in introducing sub-sections (3), (4), and (5) of Section 37 was clear and unambiguous, aiming to exclude expenses towards rent, repairs, and maintenance of accommodation used as a guest house, as indicated in sub-section (4) of Section 37. Respectfully following the Supreme Court's decision, the High Court answered both questions of law in favour of the Revenue and against the assessee. The order of the AO on the issue was restored, setting aside the orders of the CIT(A) and the Tribunal.

What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) which confirmed the order of the Commissioner of Income Tax (Appeals) (CIT(A)). The CIT(A) had directed the Assessing Officer (AO) to allow guest house expenses and depreciation on a guest house as claimed by the assessee, M/s. Forbes, Ewart & Figgis (P) Ltd. The assessee claimed that apartments maintained at Madras and Coimbatore were for the stay of touring officers due to accommodation difficulties in those cities. The assessment year in question is 1992-93. The ITAT relied on a Calcutta High Court decision, while the CIT(A) relied on a Bombay High Court decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the order of the CIT(A) directing the assessing officer to allow guest house expenses incurred by the assessee and depreciation on the guest house as claimed by the assessee? (Question of law) 2. Whether, on the facts and in the circumstances of the case and also in the light of sub-section (5) of Section 37, the Tribunal is justified in law in interfering with the order of the assessing authority with reference to guest house issue/guest house expenditure? (Question of law) Assessee's Contentions: The assessee contended that the apartments at Madras and Coimbatore were maintained for the stay of touring officers due to difficulties in securing accommodation, and the expenses were rent payments allowable under Section 37 of the Income Tax Act, 1961. The CIT(A) relied on CIT v. Chase Bright Steel Ltd. (No.1) [1989] 177 ITR 124 (Bombay High Court). Revenue's Contentions: The Revenue challenged the allowance of guest house expenses and depreciation. The Tribunal relied on Commissioner of Income Tax v. Parshva Properties, 164 ITR 673 (Calcutta High Court).

Which sections of the Income-tax Act were involved?

Section 37,Section 37(4),Section 37(5)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 24TH DAY OF JULY 2012/2ND SRAVANA 1934 I.T.A.No.24 of 2002 ------------------------------------- [AGAINST THE ORDER IN I.T.A.No.641 (COCH)/1996 DATED 26.07.2001 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN] (ASSESSMENT YEAR 1992-93) --------------------- APPELLANT/APPELLANT:- --------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN.

BY ADVS.SRI.P.K.R.MENON (SR.), SENIOR COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, SC FOR IT. RESPONDENT/RESPONDENT:- ---------------------------------------------- M/S.FORBES, EWART & FIGGIS (P) LTD., COCHIN-3. BY ADVS. SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI.ANIL D. NAIR. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-07-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:-

Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. ------------------------------------------- I.T.A.No.24 of 2002 ------------------------------------------- Dated this, the 24th day of July, 2012 JUDGMENT K.Vinod Chandran,J: The Revenue is in appeal, raising the following questions of law: i) Whether, on the facts and in the circumstances of the case the Tribunal is right in law in confirming the order of the CIT (A) directing the assessing officer to allow guest house expenses incurred by the assessee and depreciation on guest house as claimed by the assessee? ii) Whether, on the facts and in the circumstances of the case and also in the light of sub-section (5) of Section 37, the Tribunal is justified in law in interfering with the order of the assessing authority with reference to guest house issue/guest house expenditure? 2. Essentially the issue raised in the appeal is regarding the order of the first appellate authority, as confirmed by the Tribunal, allowing the claim of the assessee that the amounts spent for maintaining residential accommodation at Madras and Coimbatore

ITA.No.24 of 2002 - 2 - were allowable as expenditure incurred towards payment of rent under Section 37 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The claim of the assessee was that the apartments at Madras and Coimbatore were kept ready for stay by the touring officers of the assessee due to the difficulties faced by such officers to get accommodation in those cities. The first appellate authority allowed the claim of the assessee relying on the decision of the Bombay High Court in CIT v. Chase Bright Steel Ltd. (No.1) [1989] 177 ITR 124. 3. The Tribunal relied on a decision of the Calcutta High Court, reported in Commissioner of Income Tax v. Parshva Properties, 164 ITR 673, wherein a bungalow situated in a remote corner kept ready for the employees of the company, auditors, etc. was held to be not liable to be treated as a guest house under Section 37(4) of the Act. 4. Due to the conflicting decisions of the various High Courts, the said issue had engaged the attention of the Hon'ble Supreme Court in Britannia Industries Ltd. v. CIT, [2005] 278 ITR 546 (SC). The Hon'ble Supreme Court disagreed with the Bombay High Court judgment above cited and found favour with the ratio decidendi of Calcutta High Court judgments; delivered after the

ITA.No.24 of 2002 - 3 - decision of that Court cited by the Tribunal. The Supreme Court held that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37. 5. Respectfully following the above decision, we answer both the questions of law framed by the Revenue in favour of the Revenue and against the assessee. In such circumstances, the order of the assessing officer on the aforesaid issue is restored, setting aside the orders of the first appellate authority, as confirmed by the Tribunal. The Income Tax Appeal is allowed as above.

Sd/- Thottathil B.Radhakrishnan Judge Sd/-

K.Vinod Chandran vku/ Judge. - true copy -

More judgments on Section 37

All 4,334 judgments and leading authorities on Section 37 →

Recent GST High Court judgments

Search GST case law →