Case: Britannia Industries Ltd Vs. Commnr. Of Income Tax

2. The dispute in the instant case is with regard to disallowance of a sum of Rs. 31,38,017/- for the Assessment Year 1994-1995, which sum was claimed by the assessee as expenses towards rent, repairs, depreciation and maintenance of a guest house which was purportedly used in connection with the business of the company.3. Chapter IV of the Income Tax Act, 1961 (hereinafter referred to as ‘thedeals with computation of total income and is divided into several parts. Partbeginning with Section 28, deals with profits and gains of business or profession. Sections 30 to 36 relate to certain deductions which are allowed inter alia, on account of rent, rates, taxes, repairs and insurance in respect of premises and buildings used for the purposes of business or profession and includes—(a) where the premises are occupied by the assessee—(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;(b) any sums paid on account of rent, rates, local rates, municipal taxes;(c) the amount of any premises paid in respect of insurance against risk of damage destruction of the premises paid in respect of insurance against risk of damage destruction of the premises.In the Explanation to Section 30, it has been indicated that the amounts paid on account of the items indicated above shall not include any expenditure in the nature of capital expenditure.

Reasoning: 4. Sections 31 and 32 deal with the amounts which are allowable in respect of repairs and insurance of machinery, plant and furniture used for the purposes of the business or profession and in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets along with other intangible assets.Sections 31 and 32 deal with the amounts which are allowable in respect of repairs and insurance of machinery, plant and furniture used for the purposes of the business or profession and in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets along with other intangible assets.As will be apparent from a reading of Sub-section (1) of Section 37 of the Act, any expenditure not being expenditure of the nature described in Sections 30 to 36, inter alia, allowed and expended wholly and exclusively for the purposes of business or profession, is to be allowed in computing the income chargeable under the headingand gains of business orIn other words, Section 37 is to be read to the exclusion of the amounts allowable under Sections 30 to 36.9. Although, the expressionused for the purposes of the business orhas been used along with the expressionunder Sections 30, 31 and 32 of the Act, for the first time the expressionaccommoda-tion including any accommodation in the nature of a guesthas been used in Sub-section (3) of Section 37 of the Act. As will be seen, Sub-section (3) of Section 37 indicates that notwithstanding anything contained in Sub-section (1) any expenditure incurred by an assessee after 31st of March, 1964, inter alia, on maintenance of any residential accommodation in the nature of a guest house and hotel expenses, would be allowed only to the extent and subject to such conditions, if any, as may be prescribed.10. Sub-section (4), which was inserted in the statute book with effect from 1st April, 1970, is specific and provides that notwithstanding anything contained in Sub-section (1) and Sub-section (3) no allowance shall be made in respect of any expenditure incurred by the assessee after 28th February, 1970, on the maintenance of any residential accommodation in the nature of guest house and no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in the guest house. However, a guest house maintained as holiday home in the circumstances indicated have been excluded from the purview of Sub-section (4) referred to hereinabove.11. Inasmuch as, doubts still remained regarding the nature of accommodation used as a guest house by the companies, Sub-section (5) was included in Section 37 by the Finance Act in 1983 with effect from 1st April, 1979 and was subsequently omitted by the Finance Act, 1997 with effect from 1st April, 1998. At the relevant point of time, namely, the assessment year 1994-1995, all the aforesaid provisions of Section 37 were available and, therefore, applicable to the case of the appellant-company.e only question which we are called upon to consider in the instant case is whether the expression ‘premises andreferred to in Sections 30 and 32 andused for the purposes of the business orprofession would include within its scope and ambit the expression ‘residential accommodation including any accommodation in the nature of guestused in Sub-sections (3), (4) and (5) of Section 37 of the Act.