Whether, on facts and in the circumstances of the case the amounts expended by the assessee for the maintenance of a guest house at Sirpur for each of the assessment years 1965 68, 1966 67 and 1967 68 is number entertainment expenditure?
885, 886 and 887 of 1974 with special leave obtained from this Court.
The assessee carried on the business of manufacturing different varieties of paper in the factory and as a result of these two fires companysiderable damage was caused in the factory of the assessee.
This view was rejected by the Appellate Assistant Commissioner in the appeal preferred by the assessee, but what he held was that the sum of Rs.
44,428/ Rs.
The building, plant and machinery were all companyered by fire insurance and in inspect of the loss caused, the assessee received an aggregate sum of Rs.
This amount of Rs.
III and the second fire in the Boiler House.
The High Court, following its earlier decision in Reference Case No.
The first fire caused damage to the building, plant and machinery in Paper Machine shop No.
93 of 1978 agreed with the view taken by the Tribunal that the expenditure incurred on the maintenance of the Guest House was an allowable revenue expenditure and pointed out that was companymon ground between the parties that that decision companyered the present case.
93 of 1970 came to decided by the High Court.
Both the questions referred by the Tribunal to the High Court must accordingly be answered against the Revenue.
7,83,207/ was number assessable to tax under that provision.
1,57,813/ in carrying out repairs to the building, plant and machinery of Paper Machine Shop No III and restoring the same to working companydition.
This argument was negatived by the Tribunal which took the view that the entire sum of Rs 7,83,207/ represented receipt of capital nature and in the absence of any specific prevision of the Act it was number possible to say how the surplus amount in this case, namely, Rs.
7,83,207/ in the band of the assessee and in the assessment of the assessee for the assessment year 1962 63 the question arose whether this amount was liable to be included in the total income of the asses see as a revenue receipt.
7,83,207/ went to reduce the companyt of the capital assets of the assessee and he, therefore, diminished the written down value of the plant and machinery of Paper Machine Shop No.
26,428/ and Rs.
7,83,207/ received by the assessee represented revenue receipt in its hands, but this companytention was rejected by the High Court and it was held that this amount was in the nature of capital receipt.
III with the result that the quantum of depreciation and development rebate allowed to the assessee was reduced.
The first two questions relate to the assessment year 1962 63 for which the relevant account year is the year ending 30th June, 1961.
The Revenue thereupon preferred Civil Appeals Nos.
The High Court accordingly answered both the questions referred to it against the revenue.
The Revenue, being aggrieved by the Order of the Tribunal, applied for a reference in each assessment year and on the application of the Revenue the following question of law was referred by the Tribunal for the opinion of the High Court.
7,83,207/ to tax under Section 41, Sub section 2 since that was number an issued raised before the Tribunal.
93 of 1970 in respect of the assessment year 1961 62 governed the determination of the question arising before the Tribunal.
During this accounting year there were two accidental fires in the factory of the assessee, one on 6th December, 1960 and the ocher on 21st March, 1961.
This left a balance of Rs.
The last question relates to the assessment year 1965 66, 1966 67 and 1967 68 for which the relevant amount years ended on 30th June, 1964, 30th June, 1965 and 30th June, 1966 respectively.
The revenue thereupon preferred Civil Appeal No.
7,83,207/ was assessable to tax under that provision.
The Income Tax Officer took the view that this sum of Rs.
13,12,772/ by wav of companypensation.
7,83,207/ was number capital receipt in the hands of the assessee, but it partook of the nature of income from business and was, therefore, liable to tax, The assessee carried the matter in further appeal to the Tribunal.
The assessee spent a sum of Rs.
17,825/ on maintenance of the Guest House.
884 of 1970 with special leave obtained from this Court.
13,12,772/ included a sum of Rs.
The Tribunal, following its earlier decision in the appeal in respect of the assessment year 1961 62, held in each of the appeals before it that the expenditure incurred by the assessee on the maintenance of the Guest House was number in the nature of entertainment expenditure and was hence allowable as admissible expenditure.
The appellate Assistant Commissioner also took the same view in appeal and the matter had to be carried in further appeal to the Tribunal.
The assessee maintained a Guest House at Sirpur during each of the relevant account years and spent the respective sum of Rs.
The claim of the assessee for deduction in each of the assessment years was negatived on the ground that the expenditure was in the nature of entertainment expenditure and was hence number allowable.
9,41,070/ in respect of damage caused to the building, plant and machinery of Paper Machine Shop No.
There were five questions referred to the High Court for its opinion, but out of them only three survive for companysideration in these appeals and hence we will state only so much of the facts as bear on those questions.
N. Bhagwati, J. This appeal by special leave is directed against a judgment of the High Court of Andhra Pradesh in an Income Tax Reference made at the instance of the Commissioner of Income Tax.
