CIT Vs. ANSAL PROPERTIES & INDUSTRIES

JUDGEMENT

(1.) The first question which arises in these appeals is as follows: - "Whether in the circumstances the ITAT is correct in holding that expenses incurred on the maintenance of accommodation provided to its employees and Executives in Iraq is not disallowable?"

(2.) The assessee for the relevant accounting year had claimed a sum of Rs. 2,09,859/-. The Tribunal had this to say in respect of the above question: -

(3.) The appellant Revenue contends that having regard to the phraseology of Section 37(4) and Section 37(5) of the Income Tax Act, 1961 ( Act?, for short) as it stood at the relevant point of time, these expenses were clearly not deductible. It is submitted that the term "residence by whatever name called" would employ all the kinds of accommodation used for transit accommodation of the employees of a company, for the duration of their visit to the place concerned. Saying this clearly brought out the parliamentary intention to execute from the ambit of Section 37, the deduction as a business expense. Counsel for the Revenue relied upon the decision of the Karnataka High Court in CIT & Anr. v. IBM, New Delhi Ltd.,2010 326 ITR 170. Counsel for the respondent assessee, on the other hand, emphasised that the second proviso to Section 37(4), would be attracted and this aspect have not been gone into in the IBM?s case. It was submitted that the second proviso is an exception to the provisions of Section 37(4) and consequently to Section 37(5) and Section 37(4) as it stood at the time before its omission w. e. f. 01.04.1998 by the Finance Act, 1997 that no allowance could be made on the expenses incurred by the assessee after 28 th February, 1970 (as stated in sub-clause (i)) on the maintenance of any "residential accommodation in the nature of guest house" or for the year commencing 01.04.1971 or subsequent year also depreciation of any building guest house or depreciation in a guest house were allowed. Section 37(5) followed the tenure and evading of sub-section (4) of Section 37 by highlighting that "any accommodation by whatever name called, maintained hired, or 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 is situated is accommodation in the nature of a guest house within the meaning of subsection (4)". It was submitted by the appellant that as to what constitute a guest house within Section 37(4) was sought to be defined by Section 37(5).