(1.) TAX case (appeal) is filed at the instance of the assessee against the order of the Tribunal. The above tax case (appeal) is in respect of assessment year 1995 -96 and the same is admitted on the following substantial questions of law:
(2.) ON appeal, the CIT(A) found no merits in the contention of the assessee. He viewed that merely because the guest house is called as transit house, it does not cease to be in the nature of guest house. Thus the assessment was confirmed. The assessee went on further appeal before the Tribunal.
(3.) LEARNED counsel for the assessee pointed out that in respect of similar contention arising under the IT Act relating to assessment year 1975 -76, this Court applied the decision in CIT v. Aruna Sugars Ltd. : (1980) 123 ITR 619 (Mad) on the expression "guest house" occurring in section 37(3) of the IT Act as well as the retrospective amendment brought under section 37(5) of the IT Act w.e.f. 1 -4 -1977 to include any accommodation for the purpose of providing lodging or boarding and lodging to any person including any employee. This Court considered the expression "guest house" occurring in section 37(3) of the Act in the context of the dictionary meaning and the relevant rules to come to the conclusion that where a guest house is maintained, either in the principal place of business or in a place where the factory is located for the directors and other employees of the company who have to visit it for the purpose of the company's business, then any expenditure incurred for the maintenance of such accommodation cannot be brought within the scope of section 37(3) of the Act. This Court held that the expression "guest" did not comprehend the employees and employees could not be regarded as strangers so as to be regarded as guests. In the context of this, this Court pointed out that the expression guest house is not specifically defined in sub -section (4) of section 37 of the Act and not being the term of expression, it has to be construed as relatable to those which are not in any manner connected with the business house. Pointing out to the retrospective effect of the amendment brought forth to section 37(5) of the IT Act w.e.f. 1 -4 -1979, this Court referred to the decision of the Apex Court in CIT v. Patel Brothers & Co. Ltd. : (1995) 215 ITR 165 (SC) rendered in the context of the expression "entertainment expenditure" in section 37(2A) on the law that existed prior to the amendment and after the amendment under the Finance Act, 1983 w.e.f. 1 -4 -1976, including Explanation. 2 to section 37(2A) and held as follows: