Law:

Section:

Section 37(3) of the Income-tax Act, 1961 and rule 6C of the Income-tax Rules, 1962-Business expenditure-Residential accommodation-Assessee expended a certain sum on maintenance of its guest house on items like provisions, equipments like crockery and utensils, etc.-Whether assessee's claim for deduction under section 37(3) of expenditure allowable not only on residential accommodation in a guest house but also for providing food and other amenities to guest staying there-Held, yes Facts The assessee-company claimed in its income-tax assessment, for the assessment year 1969-70, an exemption under section 37(3) towards guest house expenditure of Rs. 13,902 consisting of provisons, equipments like crockery and untensils, etc. After finding that only customers of the assessee stayed in the guest house, the ITO disallowed exemption. He relied upon the provisions of rule 6C which, according to him, covered the occupation of guest house only by employees and not by customers. The AAC allowed the claim by holding that the entire impugned expenditure was wholly and exclusively used for the purpose of assessee's business and was deductible under section 37(1). The Tribunal took the view that the expenditure incurred in respect of residential accommodation was allowable under section 37(3) and not any other expenditure and that the provisions of section 37(1) were not attracted as guest house expenditure specifically fell under section 37(3). The Tribunal accordingly sustained the disallowance. On reference, the assessee contended that section 37(3) permitted deduction not only of expenditures incurred on maintenance of residential accommodation but also on maintenance of the guest house such as expenses towards food or other equipment required for maintenance of guest house. The Revenue pleaded that the stress in section 37(3) was only on accommodation which was clear from the use of the words "any residential accommodation including any accommodation in the nature of a guest house" and that only expenses towards residential accommodation were accordingly allowable under section 37(3) and not other expenses. Held The use of the word "any residential accommodation…

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