INCOME TAX OFFICER Vs. PERFECT CIRCLE VICTOR LTD
LAWS(IT)-1989-3-9
INCOME TAX APPELLATE TRIBUNAL
Decided on March 30,1989

Appellant
VERSUS
Respondents

JUDGEMENT

R.P. Garg, Accountant Member - (1.)THESE three appeals are by the revenue against the orders of the CIT(A) for the assessment years 1982-83 to 1984-85. Since a common issue is involved in all these appeals, they are being disposed of by this common order.
(2.)The common dispute in all these appeals is--
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that in the case of expenditure incurred on maintenance of Guest House, the entire expenditure is not disallowable under Section 37(4) and on that ground directing the ITO to requantify the disallowance under second proviso to Rule 6D(2) of the IT Rules.

The assessee has reimbursed a sum of Rs. 1,09,178 in the assessment year 1982-83, Rs. 83,633 in assessment year 1983-84 and Rs. 47,538 in assessment year 1984-85 to its associate concern, M/s. Automotive Corporation Services Limited. This was in connection with common facilities like office premises, consultancy, transit home and telex and telephone facilities. The ITO, applying the provisions of Section 37(4) read with Sub-section (5) disallowed the claim of the assessee as in the last year. The CIT(A), following his order in the appeal for 1981-82, directed the ITO to requantify the amount to be disallowed in respect of the transit flat expenses after making suitable adjustments as contemplated under Rule 6D(2) of the Income-tax Rules, 1962.

(3.)THE learned Departmental Representative submitted, that when the expenditure is disallowable under Section 37(4), then no deduction can be allowed in view of the second proviso to Rule 6D(2) because the provisions contained in Sub-section (4) are overriding in nature and specifically exclude the provisions contained in Sub-section (1) and Sub-section (3) of Section 37. Rule 6D, according to him, is under Section 37(3). He, therefore, contended that when Sub-section (3) itself is overridden by Sub-section (4), there was no occasion for the CIT(A) to have allowed the claim of the assessee by invoking the provisions of Rule 6D. He, therefore, submitted that the order of the CIT(A) is not in accordance with law inasmuch as there is no serious dispute, as observed by the CIT(A) in the assessment year 1981-82, about the fact that the expenditure is on the maintenance of the guest house. THE learned counsel for the assessee, on the other hand, submitted that the matter is covered by the order of the Tribunal in the appeal for the assessment year 1981-82 in ITA No. 2012/Bom./1985, dated 31-1-1989, wherein the order of the CIT(A) was confirmed, which has been followed by him in the years under consideration. He further submitted that Section 37(4) has no application at all to the facts of this case. According to him, it has not maintained any transit home and the CIT(A) in the earlier year has mis-directed himself in observing that there was no serious dispute that the expenditure reimbursed by the assessee would be in the nature of expenditure on the maintenance of the guest house. He submitted that sharing of the expenditure is on the basis of the trip of the employee and the charges are on the basis of a fixed rate of Rs. 150 per employee. THEre is no reservation as such of any room in the accommodation maintained by M/s. Automotive Corporation Services Limited. THE assessee had no right or priority to occupation of the premises. It was made available to the employees of the assessee only in a case where the room was vacant. THE expenses according to him were not on the maintenance of the guest house or a premises in the nature of guest house and, therefore, the provisions of Section 37(4) are not applicable and that the expenses were in the nature of travelling expenses and, therefore, the provisions of Section 37(3) were applicable. He, therefore, submitted that the CIT(A) was justified in giving direction to recompute the disallowance in accordance with Rule 6D(2) of the IT Rules.


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