THE EVEREST ADVERTISING PVT. LTD. vs. THE C.I.T., CITY - VI, BOMBAY.

None appears for the Revenue, inspite of service being completed and affidavit of service is on record.

By this common order, we dispose of above two references which raise the following questions of law : 1/8 hcs CNR No : HCBM020201351995 Uploaded on - 21/08/2020 itr423.99 Question of law in Income Tax Reference No.423 of 1999 :- “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance under Section 37(5) of Rs.57,560/- made by the Assessing Officer in respect of payments made to Welcome Group of hotels under the executive holiday plan whereunder the assessee booked accommodation for 366 days for use of its employee while on leave ? Question of law in Income Tax Reference No.42 of 2000 : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance under Section 37(5) of Rs.40,000/- made by the Assessing Officer in respect of payments made to Welcome Group of hotels under the executive holiday plan whereunder the assessee booked accommodation for 230 days for use of its employee while on leave ?

The brief facts relevant to the issue between parties are as follows : The Applicant – Assessee

In the case of Reference No.42 of 2000 the amount paid was Rs.40,000/- during the assessment year 1985-86. In Appeal before the Commissioner of Income Tax (Appeals) [CIT (A)] it was held that maintenance of holiday home was covered under the provisions of Section 37(4) of the Act and the applicant has satisfied conditions and disallowance was therefore deleted. In appeal by the Revenue, the Tribunal found that the provisions of Section 37(5) inserted by the Finance Act with retrospective effect from 1.4.1979 and the Section contemplated that the accommodation maintained by the assessee to provide boarding and/or lodging to any person including an employee, who was on tour or visit to the place at which accommodation is situated although the applicant complied with the condition requiring reservation of exceeding 182 days. The tribunal felt that it amounted maintenance of guest house and accordingly the contention of the applicant was rejected and the order of the Assessing Officer was restored. The question has thereafter been referred to this Court. 3/8 Uploaded on - 21/08/2020 itr423.99

Mr.Surve, learned counsel appearing on behalf of the Applicant while urging the Applicant's case states that the provisions of Section 37(4) and the second proviso was applicable in terms and as such, both conditions of the second proviso read with Explanation 1, which permits residential accommodation in the nature of guest house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding 182 days during the previous year, would be construed as accommodation in the nature of “guest house” and, therefore, was in compliance with the second proviso which contemplated maintenance of such guest house as holiday home and complied with Section 37(4)(1) and the amount paid for maintenance for residential accommodation is in the nature of guest house. Mr.Surve further points out that as far as Section 37(5) was concerned, the same was not at all attracted, in view of the fact that Section 37(5) contemplated accommodation by whatever name called it was maintained, hired or reserved for the purpose of providing boarding and/or lodging to any person including any employee on tour or a visit. Thus, it is contention of Mr.Surve that the Applicant's case squarely fall within Section 37(4) and not under Section 37(5) and he, therefore, submitted to the question referred may be answered in the negative. The provisions of Section 37(4) and 37(5) read as under : 4/8 Uploaded on - 21/08/2020 itr423.99 "37. (4) Notwithstanding anything contained in sub-section (1) or sub-section (3), - (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 clause (i) and the amount of any depreciation referred to in clause (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 house - (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred wholetime employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation. - For the purposes of this sub- section, - (i) residential accommodation in the nature of a guest house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation." 5/8 Uploaded on - 21/08/2020 itr423.99 (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

M/s. Maddi Venkataratnam & Co. Pvt. Ltd. 217 ITR 571 and yet another decision of the Division Bench of this Court in M/s.Greaves Cotton and Co. Ltd. vs. Commissioner of Income Tax 279 ITR 42 in support of his contention.

We note that the proviso to sub-section 4 of Section 37 of the Act excludes holiday home from the meaning of a guest house, if the guest house is intended for use of its employees while on leave. Sub-section 5 of Section 37 of the Act clarifies that any accommodation by whatever name called, would be considered to be a guest house within the meaning of sub-section 4 of Section 37 of the Act. However, sub-section 5 of section 37 cannot / does not render ineffective the second proviso to section 37(4) of the Act. If 6/8 Uploaded on - 21/08/2020 itr423.99 it was the intention of the Parliament to render the second proviso, redundant / ineffective, then at the time when it introduced sub- section 5 to Section 37 of the Act, the second proviso to sub-section 4 of Section 37 of the Act would itself have been deleted from the Act. The insertion of sub-section (5) into section 37 was only to restrict the application of sub-section (4) of section 37 to lodging or boarding provided to any person when he is on a tour or a visit to a place. It does not cover use of the guest house used by employees while on leave which are considered to be holiday home. Therefore, sub-section 5 of section 37 of the Act would have no application when the guest house is being used as holiday home i.e. for exclusive use of employees on leave. The words “while on leave” is absent in sub-section 5 of section 37 and restricts the use of accommodation to be considered as a guest house when used by the employees on a tour or a visit to a place where such accommodation is situated. Therefore, sub-section 5 of Section 37 of the Act can have no application when the guest house is used as a holiday home as defined in second proviso to section 37(4) of the Act.

In the above view, the Tribunal was not correct in invoking sub-section 5 of Section 37 to deny the benefit of the second proviso to section 37(4) of the Act available to the applicant assessee. This is so as section 37(5) of the Act will not apply to the 7/8 Uploaded on - 21/08/2020 itr423.99 cases covered by the second proviso to section 37(4) of the Act.

In the above view, the question as referred to us is answered in the negative i.e. in favour of the applicant assessee and against the respondent Revenue.

The Reference is disposed of in the above terms. (A.K. MENON,J.) (M. S. SANKLECHA,J.) 8/8 Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)