N. V. BALASUBRAMANIAN, J. :
In compliance with the directions of this Court dt. 14th March, 1989, the Tribunal referred the following question of law for our consideration under s. 256(2) of the IT Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the maintenance of the guest house and the depreciation on the building used as a guest house should be allowed as a deduction ?'
2. The assessee is a public limited company. The assessment year involved is 1978-79. The assessee maintained a guest house at Mettur and incurred certain expenditure amounting to Rs. 30,528 and also claimed depreciation of Rs. 8,999 in computing the income of the previous year ended 31st March, 1978 relevant to the asst. yr. 1978-79. The ITO disallowed the claim of the assessee with reference to both the amounts namely, the expenditure as well as the claim of depreciation. The assessee appealed to the CIT(A). The CIT(A) accepted the claim of the assessee and directed the allowance of the claims. The Tribunal, on appeal by the Revenue, dismissed the appeal preferred by the Revenue holding the assessee would be entitled to the claim of deduction of the expenditure as well as the depreciation in computing the income of the assessee.
3. Mr. C. V. Rajan, learned counsel for the Revenue, submitted the Explanation introduced in sub-s. (5) of s. 37 of the IT Act is in retrospective nature and, therefore, the assessee is not entitled to deduction of the expenditure claimed or the depreciation claimed by the assessee.
4. Mr. P. P. S. Janarthana Raja, learned counsel, undertakes to file vakalat for the respondent. He submitted that the Explanation was introduced by the Finance Act, 1983, with retrospective effect from 1st April, 1979, and since a limited retrospective effect is made by the above amendment, sub-s. (5) of s. 37 would not apply to the assessment year in question.
5. We have carefully considered the submissions made by learned counsel for the parties. Sub-s. (5) of s. 37 of the Act was introduced by the Finance Act, 1983, with retrospective effect only from 1st April, 1979. A mere look at sub-s. (5) of s. 37 of the Act shows that only from 1st April, 1979, if any accommodation is maintained, hired or reserved or arranged by the assessee for the purpose of providing boarding or lodging including any employee, director or the holder of office on tour or visit to the place, at which such accommodation is situated, the accommodation will be treated as a guest house for the purpose of sub-s. (4) of s. 37 of the Act. Since the provisions have been introduced only from 1st April, 1979, by the Finance Act, 1983, it will not have any larger retrospective effect than that is provided by the legislature. Since the provisions of s. 37(5) of the Act are not applicable to the facts of the case, on the basis of the decision of this Court in the case of CIT vs. Aruna Sugars : [1980]123ITR619(Mad) , we are of the view that the expenses incurred by the assessee are allowable in the computation of the business income of the assessee as the guest house maintained by the assessee cannot be regarded as a guest house within the meaning of s. 37(4) of the Act. We are, therefore of the view that there is no infirmity in the order of the Tribunal in holding that the assessee was entitled to deduction of expenditure incurred on the maintenance of the guest house and the depreciation of the building used as the guest house. Accordingly, we answer the question of law referred to us in the affirmative and against the Department.