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1993 Supreme(Guj) 507
IN THE HIGH COURT OF GUJARAT
G.T. NANAVATI, S.M. SONI, JJ.
Commercial Ahmedabad Mills Co. Ltd. - Petitioner
Versus
Commissioner of Income-Tax - Respondent
Income-tax Reference No. 287 of 1980
Decided on : 17-02-1993
Advocate Appeared:
For the Assessee :J.P. Shah, Advocate.
For the Commissioner : B.J. Shelat, instructed by M.R. Bhatt of M/s. R.P. Bhatt and Co.
Expenditure incurred for the welfare of employees can be considered as business expenditure.
Headnote:
INCOME TAX - Deductions - Accommodation expenses - Salary to pujari - Whether disallowance of Rs. 3,000 for accommodation expenses and Rs. 2,100 paid to a pujari justified - Held, no.
Fact of the Case:
The assessee, a mill company, claimed deduction of Rs. 3,000 paid to Suru Private Limited for accommodation expenses of its officers in Bombay and Rs. 2,100 paid as salary to a pujari employed in a temple within the mill premises. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal disallowed both claims, holding that the accommodation expenses were hit by section 37(4) of the Income-tax Act, 1961, and the salary to the pujari was not a business expenditure.
Finding of the Court:
The court held that the accommodation expenses were not hit by section 37(4) of the Act as the assessee was not maintaining any residential accommodation but was only paying charges for staying in a guest house maintained by Suru Private Limited. It also held that the salary paid to the pujari was a business expenditure as the temple was maintained for the general benefit of the assessee's employees.
Issues: 1. Whether the disallowance of Rs. 3,000 for accommodation expenses was justified under section 37(4) of the Act? 2. Whether the disallowance of Rs. 2,100 paid to a pujari was justified as non-business expenditure?
Ratio Decidendi: 1. Section 37(4) of the Act disallows expenditure incurred on the maintenance of a guest house, except where the assessee is required to maintain a guest house for the purpose of his business. In the present case, the assessee was not maintaining any residential accommodation but was only paying charges for staying in a guest house maintained by Suru Private Limited. Therefore, the disallowance of Rs. 3,000 for accommodation expenses was not justified. 2. Expenditure incurred for the welfare of employees can be considered as business expenditure. In the present case, the temple was maintained for the general benefit of the assessee's employees. Therefore, the salary paid to the pujari was a business expenditure.
Final Decision: The court answered questions 1 and 2 in the negative, in favor of the assessee and against the Revenue. Question 3 was answered in the affirmative, against the assessee and in favor of the Revenue.
JUDGMENT :
G.T. Nanavati, J.
The questions which are referred to this court by the Income-tax Appellate Tribunal, Ahmedabad, under section 256(1) of the Income-tax Act, 1961, are as follows :
"(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in law in confirming the disallowance of contribution for accommodation expenses of Rs. 3,000 treating the same as expenditure hit by the provisions of section 37(4) of the Act ?
(2) Whether, on the facts and circumstances of the case, the Tribunal was justified in law in confirming the disallowance of salary of Rs. 2,100 paid to a pujari holding the same as non-business expenditure ?
(3) Whether, on the facts and circumstances of the case, the Tribunal was justified in law in holding that the assessee was not entitled to claim of gratuity liability of Rs. 17,81,503 on various alternative grounds and under various provisions of the Act with special reference to section 28 of the Act ?"
2. As regards question No.3, the learned advocate appearing for the assessee at the outset conceded that in view of the decision of the Supreme Court in Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585, the view taken by the Tribunal has to be regarded as correct and, therefore, that question will have to be answered in the affirmative, that is, against the assessee and in favour of the Revenue. Therefore, it is not necessary to state the facts relating to that question.
3. The assessee was having an arrangement with Suru Private Limited. The assessee's officers whenever they went to Bombay were provided with lodging facilities in the residential accommodation maintained by Suru Private Limited. For that purpose, the assessee was paying Rs. 3,000 per annum to Suru Private Limited. The assessee claimed deduction of this amount during the assessment for the assessment year 1973-74. It had in the past also claimed deduction of that amount as business expenditure. It appears that the claim of the assessee was consistently rejected by the Tribunal and following the decision of the Tribunal, the Income-tax Officer, the Appellate Assistant Commissioner and even the Tribunal rejected the claim for the assessment year 1973-74 also. The claim was disallowed on the ground that it was hit by the provisions of section 37(4) of the Income-tax Act, 1961. The assessee had also claimed deduction of Rs. 2,100 paid by way of salary to a pujari employed by the assessee. Though it is not specifically stated in the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, it appears that the assessee was having a temple within the mill premises and the pujari was employed in connection with the said temple. The Income-tax Officer disallowed the said claim on the ground that since the company has no soul to invoke the blessings of God by homam and puja, the said expenditure cannot be regarded as business expenditure. The Income-tax Officer also relied upon the decision of the Delhi High Court in CIT v. Bhanna Mal and Co. P. Ltd. (1971) 82 ITR 138, for taking that view. The Appellate Assistant commissioner and the Tribunal confirmed that view. Thereupon, the assessee moved the Tribunal for referring the above-stated questions.
4. What is contended by learned counsel for the assessee is that the assessee was not maintaining any residential accommodation at Bombay and, therefore, it was an error to proceed on the basis that Rs. 3,000 were spent for maintenance of a guest house for residential accommodation. It is not in dispute that the guest house was maintained by Suru Private Limited and that the assessee was paying only charges for stay by its officers while they visited Bombay for the assessee's work. Suru Private Limited was itself a tenant of the said premises and in those premises, it was running a guest house. It is not the case of the Revenue that it was a hotel. The assessee had not hired the residential accommodation but what the assessee was paying was charges fo
