Law: Income Tax Act, 1961

Section: 32,37,37(5)

(a) Income-tax--Business expenditure---Depreciation---Guest house---Law applicable. Effect of introduction of subsection (5) of S.37 by Finance Act, 1983, with retrospective effect from 1-4-1979---Subsection (5) of S.37 not applicable prior to 1-4-1979---Maintenance of flat in accounting year relevant to assessment year 1973-74---Finding by Tribunal that flat could not be taken as a guest house because it was used mainly by assessee's employees--­Expenditure on maintenance and depreciation allowable--Indian Income Tax Act, 1961, Ss.32 & 37--- (b) Income-tax----Business expenditure---Provision for gratuity---Allowable for assessment year 1975-76 following the decision of the High Court in assessee's own case for assessment year 1973-74---Indian Income Tax Act, 1961, S.37. The effect of the amendment made by the Finance Act, 1983, with retrospective effect from April 1, 1979, is to alter the law on the scope of the term, "guest house" and when there is an alteration in the law by the Finance Act, 1983, it cannot be said that the law has clarified the position. The provision and the object sought to be achieved by the provision also indicate that it was not given full retrospective effect. Hence, subsection (5) of section 37 of the Income Tax Act, 1961, would not apply before April 1, 1979. CIT v. Patel Bros. & Co. Ltd. (1995) 215 ITR 165 (SC) applied. Held, (i) that following the in the assessee's own case for 1973-74 (241 ITR 402 (Mad.) provision for gratuity should be allowed as a deduction for assessment year 1975-76. Carborandum Universal Ltd. v. CIT (2000) 241 ITR 402 (Mad.) fol. (ii) That the Tribunal noticed that the guest house register clearly showed that only the assessee's employees occupied the flat primarily and the assessee also collected charges from other persons who occupied it and who were the employees of associated companies and sister concerns. From the above factual position, the Tribunal came to the conclusion that the said flat or apartment could not be considered as a guest house at all. For the assessment year 1975-76, the Tribunal was right in holding that the expenditure incurred on the maintenance of the flat in Bombay and…

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