Rama Jois, J.—In accordance with the directions issued by this court in C.P. No. 200 of 1974 under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the following question of law has been referred for the opinion of this court by the Income Tax Appellate Tribunal, Bangalore.

"Whether, on the facts and in the circumstances of the case, the guest house expenditure of Rs. 13,902 is an item of allowable expenditure falling under section 37(3) of the Income Tax Act, 1961 ?"

2. The assessee in this case is a limited company. In returns filed for the assessment year 1969-70, the assessee claimed exemption towards guest house expenditure amounting to Rs. 13,902 consisting of the following items :

Rs.

(i) Provisions

8,901

(ii) Other expenditure

3,154

(iii) Equipments like crockery, utensils, etc., written off

1,847

Total

13,902

3. The ITO on going through the materials placed before him case to the conclusion that only customers of the assessee stayed in the guest house and, therefore, the deduction claimed by the assessee was not permissible under sub-s. (3) of s. 37 of the Act. In taking the said view he relied on r. 6C of the I.T. Rules, 1962 (hereinafter r