TMI Blog1977 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... f messing came to Rs. 15,110. The assessee also incurred expenditure of Rs. 7,021 over tea and pan out of which the assessee expended Rs. 2,021 for the employees. In other words, Rs. 5,000 were expended by the assessee for tea and pan to customers. The assessee claimed allowance of Rs. 20,110 as deduction under s. 37(1). However, considering that there was insertion of s. 37(2B) with effect from 1970, the ITO treated the expenditure as entertainment expenses. Accordingly, he disallowed Rs. 5,000 on account of tea and pan expenditure to the customers and Rs. 15,110 on account of messing. In an appeal by the assessee, the AAC partly accepted the claim of the assessee. Out of the expenditure of Rs. 5,000 for tea and pan to the customers, onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an assessee after February 28, 1970, was not permissible as a deduction and in view of the said provision, the Tribunal was in error in allowing such deduction as claimed by the assessee. Strong reliance was placed by him upon a decision of the Full Bench of the Kerala High Court in the case of CIT v. Veeriah Reddiar [1977] 106 ITR 610. Under s. 37, sub-s. (1) of the I.T. Act, 1961, any expenditure (not being expenditure of the nature described in ss. 30 to 36 and s. 80VV 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention. It is important to note that, instead of merely using the expression 'entertainment expenditure' the words actually used by Parliament in sub-ss. (2A) and (2B) are 'expenditure in the nature of entertainment expenditure'. The latter expression is much wider in its content inasmuch as it would take within its scope not merely what can strictly be regarded as entertainment expenditure proper but also expenditure of allied nature partaking of some, though not all, of the characteristics of entertainment expenditure. It appears to us to be beyond doubt that the intention of Parliament in employing the additional words 'expenditure in the nature of' was to cast the net sufficiently wide as to bring within the scope of the two sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f entertainment expenditure but it also considered the various meanings of the expression "entertainment". After referring to various dictionary meanings of the word "entertainment", it came to the following conclusion at page 434: " It is, therefore, clear to us that the dictionary meaning of the term 'entertainment' is to receive and treat with hospitality, which broadly means receiving and entertaining strangers or guests in a friendly, generous and liberal way. The term 'entertainment', in the context of the I.T. Act, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t warrant the converse position to be correct and every hospitality would not constitute entertainment. Hospitality shown on account of obligation of business arising as a result of an express or implied contract or arising on account of the long standing custom of a trade, business or profession cannot amount to entertainment, and acts done in discharge of such obligation cannot be included and covered in the term 'entertainment' without violence to language." In our opinion, we are in respectful agreement with the view that has been taken by the Gujarat High Court as that view is in consonance with commercial practice and the manner in which business and trade is carried on in large commercial centres. In the case before us, we are conc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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