(a) Income-tax---

----Business expenditure---Disallowance---Guest house ---Company-- Expenditure on repair of Bungalow used by directors---Finding by Tribunal that bungalow was not a guest house---Expenditure was deductible---Indian Income Tax Act, 1961, S.37.

(b) Income-tax--

----Reference---Finality of findings of fact---Indian Income Tax Act, 1961, S.256.

The assessee-company, which carried on the business of tea plantation, manufacture and sale of tea, owned a tea estate. In the tea estate, there was a bungalow for directors. In the assessment year 1985-86, certain amounts viz., Rs.27,760 and Rs.21,524, were spent towards the cost of repairing of the bungalow and furniture, respectively. The Assessing Officer disallowed those expenses holding that the expenses pertained to a guesthouse. However, the Tribunal allowed them. On a reference:

Held, that the Tribunal had come to a categorical finding that the bungalow was not a guesthouse. The Revenue had not challenged this finding as being perverse. If it was not a guesthouse the expenditure should be allowed to be deducted.

The finding arrived at by the Tribunal is final so far the facts are concerned unless it is perverse or while arriving at the finding the Tribunal takes irrelevant and extraneous matters into consideration. In that case the question has to be referred under section 256(1) of the Income Tax Act, 1961, in that manner and only then the High Court can answer it.

CIT v. Parshva Properties Ltd. (1987) 164 ITR 673 (Cal.) ref.

G.K. Joshi and U. Bhuyan for the Commissioner.

P. Borthakur and Ms. B. Acharya for the Assessee.

JUDGMENT

D.N. BARUAH, J. ---At the instance of the Revenue, the following two questions have been referred by the Income Tax. Tribunal under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"), for opinion of this Court:

"(i)Whether the Tribunal did not err in facts as well as in law in deleting the disallowance of Rs.27,760 and Rs.21,824 being repairing expenses of the directors' bungalow and its furniture when the same expenses clearly come within the mischief of subsection (5) of section 37 of the Income-tax Act?

(ii)Whether the Tribunal did not err in facts as well as in law in applying the ratio of the decision of CIT v. Parshva Properties Ltd. (1987) 164 ITR 673 (Cal.), when that decision was rendered in respect of the relevant provisions of section 37(4), before the insertion of subsection (5) of section 37?"

The assessee is a tea company carrying on business of tea plantation, manufacture and sale of tea. It owns a tea estate. In the tea estate, there is a bungalow for directors. In the assessment year 1985-86, certain amounts, viz., Rs.27,760 and Rs.21,524, were spent towards the cost of repairing of the bungalow and furniture, respectively. The Assessing Officer disallowed those expenses holding that the expenses were pertaining to a guest house and, therefore, such allowances were not maintainable under section 37(4) of the Act. The matter was taken up before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) confirmed the order passed by the Assessing Officer. Being aggrieved, the assessee approached the Tribunal which, however, set aside the order passed by the Assessing Officer which was affirmed by the Commissioner of Income-tax (Appeals) holding that the said amounts ought to have been allowed so far the disallowances are concerned. The Tribunal, while allowing the deduction, held that the bungalow was not treated as a guest house and, therefore, the expenses on the maintenance of the said bungalow did not come within the mischief of section 37(4) of the Act. Hence, the present reference.

We have heard Mr. G.K. Joshi, learned standing counsel appearing on behalf of the Revenue. assisted by Mr. U. Bhuyan, learned junior standing counsel, and Mr. P. Borthakur, assisted by Ms. B. Acharya, learned counsel appearing on behalf of the assessee.

Mr. Joshi submits that though the company called the bungalow to be a deirector's bungalow in fact it was only a guest house where the directors used to come, stay for some time and go back. Therefore, this bungalow was not a permanent residence of-any one director. Drawing our attention to section 37(4) of the Act. Mr Joshi submits that as per section 37(4) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation. Drawing our attention to section 37(5) of the Act, Mr Joshi emphatically submits that the nature and not the name of a house is relevant. Merely for calling a house to be director's bungalow the company shall not be entitled to allowance of deduction Therefore, the Tribunal erred in holding that the expenditure shoulu be allowed to be deducted from the income.

Mr. Borthakur, on the other hand, submits that the Tribunal was justified under the facts and circumstances of the case in allowing the deduction.

On the rival contentions of the parties it is to be seen whether in the facts and circumstances of the case, the Tribunal was justified in allowing the deduction. We have gone through the judgment of the Tribunal. The Tribunal observed thus:

"The Assessing Officer simply recorded that it is a guest house and so also the learned Commissioner of Income-tax (Appeals) pre supposing that the expenditure incurred for upkeep of the director's bungalow amounting to Rs.27,760- and repair works done to its furniture for Rs.21,524, are for the maintenance of the guest house..."

The Tribunal further observed thus:

"The bungalow was not treated as a guest house and expenses on the maintenance of the said bungalow was allowed to be as business expenditure and not covered by the mischief of the provisions of section 37(4) of the Act."

Thereafter, the Tribunal has come to a clear finding as follows: "According to our considered view thus the manner in which the director's bungalow is maintained is not a guest house and as there is no dispute as to the quantum of expenditure, the assessee- company is allowed its claim. The disallowance of Rs.27,760 onaccount of maintenance of the director's bungalow Rs.21,524 on account of repairs of its furniture are, therefore, deleted. The order of the learned Commissioner of Income-tax (Appeals) on this point, therefore, does not seem proper and correct and the same is set aside."

From the above it is clear that the Tribunal has come to a categorical finding that it was not a guesthouse. It is a well-established principle of law that the finding arrived at by the Tribunal is final so far the facts are concerned unless it is perverse or while arriving at the finding the Tribunal takes up irrelevant and extraneous matters into consideration. In that case the question has to be referred under section 256(1) of the Act in that manner and only then the High Court can answer it. As the Revenue has not raised the question of perversity we are constrained to hold that it was not a guesthouse. In that view of the matter, if it was not a guesthouse definitely the expenditure should be allowed to be deducted. The Tribunal followed the decision in CIT v. Parshva Properties Ltd. (1987) 164 ITR 673 (Cal.) which was rendered before the enactment of subsection (5) of section 37 of the Act. Subsection (5) of section 37 has been inserted in the Finance Act, 1983, with retrospective effect from April 1, 1979. This provision is only explanatory in nature. The decision in CIT v. Parshva Properties Ltd. (1987) 164 ITR 673 (Cal.) was rendered on January 14, 1986, when the provision of subsection (5) of section 37 was already there.

In view of the above, we answer both the questions in the affirmative, in favour of the assessee and against the Revenue.

M.B.A./1543/FCReference answered.