The main legal point established in the judgment is that the interpretation of the provisions of Section 37(4) and (5) of the Income Tax Act is crucial in determining the allowable deductions for expenses incurred for maintaining accommodation.

K.L. Manjunath, J.

The Revenue has come up in this appeal challenging the order passed by the Commissioner of Income Tax (Appeals), Bangalore, which has been confirmed by the Income Tax Appellate Tribunal, Bangalore, in ITA No. 683/Bang/2000 dated 28.5.2004 raising the following substantial question of law:-

“Whether the Appellate Authorities were correct in holding that transit house maintenance expense is an allowable deduction despite the Assessing Officer having held that the same was a guest house expense which was not allowable under Section 37(4) and 37(5) of the Act?”

2. The facts leading to this appeal are as hereunder:-

The assessee-Company filed its return of income for the assessment year 1996-97. In the return of income it claimed a deduction of Rs.10,61,253/-being the expenses incurred by it in respect of the transit accommodation provided to its employees. Contending that the transitory accommodation claimed by the assess is more in the nature of a guest-house, the claim of the assessee was disallowed. Being aggrieved by the order of assessment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) which appeal came to be allowed in respect of the claim made in respect of addition of Rs.10,61,253/-made by the assessee in respect of expenditure incurred by it for the maintenance of transit accommodation to its employees. Being aggrieved by the order of the Income Tax (Appeals), Bangalore, dated 31.7.2000, the Revenue preferred an appeal before the Income Tax Appellate Tribunal, Bangalore. The Income Tax Appellate Tribunal also concurred with the views of the Commissioner of Income Tax (Appeals). Accordingly, the appeal was dismissed. Being aggrieved by the concurrent findings of the orders passed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, the present appeal is filed.

3. The main contention of the appellant before us is that the expenses incurred by the assessee to maintain the transit accommodation has been considered by the Commissioner of Income Tax (Appeals) and the Tribunal as it falls under Section 37(4) and (5) of the Income Tax Act and such accommodation ought to be treated as guest house expenditure. Relying upon the judgment of the Supreme Court in Britannia Industries Ltd. –vs-Commissioner of Income Tax & Anr. (2005) 278 ITR 546 (SC), the learned counsel for the Revenue contends, that the expression guest-house includes the residential accommodation. Therefore, any expenditure incurred by the assessee towards the maintenance of the transit residential house has to be treated as a guest-house and not liable for deduction. Therefore, he requests this Court to set aside the orders passed by the Commissioner of Income Tax (Appeals) and the Tribunal by answering the question of law in favour of the Revenue.

4. Per contra, the learned counsel for the assessee, contends that the premises maintained by the assessee as a transitory accommodation to its employees cannot be equated as a guest house and that the respondent assessee is not maintaining the transitory accommodation to entertain the guest and it is also her contention that such residential premises are also not used as a holiday home in order to distinguish the premises as a guest house or holiday home. Therefore, she contends that the Commissioner of Income Tax (appeals) as well as the Tribunal were justified in not considering the grievance of the Revenue and they have rightly rejected the contentions of the Revenue. In the circumstance, she requests the court to dismiss the appeal.

5. Having heard the counsel for the parties, we have to consider whether the residential premises maintained by the assessee falls within the definition of a guest-house or a holiday-home as contemplated under Section 37(4) and (5) of the Income Tax Act. If the premises maintained by the respondent-assessee fall within the category of guest house or a holiday home, then this court has to answer the qu