Meaning of “Guest house”

The meaning of guest house under section 37(4) of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of guest house.

Meaning of guest house

The phrase “guest house” used in section 37(4) of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Karnataka High Court explained the meaning of “guest house” while delivering judgment in N.G.E.F. Ltd. Vs. CIT [1984] 18 TAXMAN 499 (KAR.) as under :

Meaning: A guest house is not necessarily a place where only total strangers are accommodated. Guest in ordinary connotation refers to a person entertained at another’s premises. He may be a stranger or a close friend of the host and he may be invited or uninvited.

2. Hon’ble Kolkata High Court explained the meaning of “guest house” while delivering judgment in CIT Vs. Parshva Properties Ltd. [1986] 26 TAXMAN 230 (CAL.) as under :

Meaning: The ‘guest house’ envisaged in section 37(4) is a place where the guests are received and entertained gratuitously or at a concessional rate.

Section 37(4) of Income Tax Act

General.

37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.

Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

(2) [***]

(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.

(3) [***]

(3A) [***]

(3B) [***]

(3C) [***]

(3D) [***]

(4) [***]

(5) [***]

Updated up to Finance Act 2021.