K.AGRAWAL J. - (1.) THE Tribunal has referred the following question of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the order of the CIT(A) in deleting the disallowance of rent of Rs. 31,200 in respect of 'Transit House' accommodation on the premise that the same being specifically allowable under s. 30 of the IT Act, the prohibitory provisions of s. 37(4) of the IT Act were not applicable -
(2.) THE reference relates to the asst. yr. 1986 -87.
(3.) BRIEFLY stated, the facts giving rise to the present reference are as follows : The deduction claimed by the assessee on account of rent included an amount of Rs. 31,200 paid for premises used as a guest house. This amount was disallowed by the AO under s. 37(4) of the Act. On appeal, the CIT(A) deleted the disallowance on the premise that s. 37(4) of the Act authorises disallowance of only those expenses which could be considered under sub -s. (1) or sub -s. (3) of s. 37 of the Act. Since payment of rent was allowable under s. 30 of the Act, the provisions of s. 37(4) and s. 37(5) could not be invoked to disallow payment of rent of the guest house. On appeal by the Department, the Tribunal referred to the cleavage of opinion on the subject among various High Courts and preferred to adopt the interpretation which was favourable to the assessee. It, thus, upheld the order of the CIT(A). The order of the Tribunal reads as under : "On the issue involved there is a difference of opinion among various High Courts. At one hand, some High Courts have taken the view that the disallowance under s. 37(4) shall be restricted to the expenditure allowable under sub -s. (1) or (3) of s. 37 only, on the other hand, some High Courts have held that the whole of the expenditure on maintenance of guest house, including rent and depreciation, is to be disallowed under s. 37(4) of the IT Act. We are inclined to adopt the interpretation which is favourable to the assessee. Accordingly the rent of Rs. 31,200 paid for the guest house accommodation is held to be allowable under s. 30 of the IT Act. The order of the CIT(A) on this issue is upheld.";