TMI Blog2003 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1997: "Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in law in holding that part of sales promotion expenses or sales seminar expenses of Rs. 2,03,846 including, inter alia, on account of supply of food and drinks to employees and customers, was business expenditure and an allowable deduction from the assessee's business income and not in the nature of entertainment expenditure disallowable under section 37(2A) of the Income-tax Act?" R.A. No. 574(Cal) of 1997: "Whether, on the facts and in the circumstances of the case, the Tribunal correctly applied the provisions of section 36(1)(iii) in confirming the disallowance of interest on borrowed capital in the amount of Rs. 3,05,444?" The first question: The first question is whether the expenditure on food and drinks provided to the employees and to the customers in the course of the seminar for sales promotion held in the previous year 1989-90 was admissible for deduction as business expenditure or an expenditure for entertainment disallowable under section 37(2A) of the said Act, as applicable to the assessment year 1990-91. The assessee has not claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, no other interpretation can be given to the said provision. Expenditure on food and beverages supplied to the employees in the course of a seminar at a place other than office, factory or their place of work cannot be included within the exception. Mr. Khaitan, however, attempted to contend that a narrow meaning to the expression "other place of their work" cannot be imputed in the present case. It should be given its due meaning having regard to the context. If food is supplied to the employees during the course of their work, it would include places where such employees may, for the time being, be at work. It cannot be confined only to the normal place of work. According to him, if such an interpretation is to be given, in that event, we are required to read something the Legislature has not expressly included. The court cannot interpret a provision of a statute, which would amount to adding something to the statute, a proposition otherwise impermissible. The question appears to be very simple. We are not concerned with the distinction of hospitality or entertainment as was sought to be drawn by Mr. Khaitan in the present case. Since the facts do not pose or involve any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees in office, factory or other place of their work is excepted from entertainment expenditure. It can also be read in another manner to indicate that the absence of such qualifying phrase in the exception implies that the exception is unqualified and all kinds of expenditure on food and drinks for the employees, if provided in the office, factory or other place of their work, is excepted. Learned counsel for the Department/respondent had relied on the decision in CIT v. Green Roadways [1985] 154 ITR 639 (Raj). The said decision does not help the respondent but the assessee. Inasmuch as in the said decision, it was held that the hospitality extended to the customer is an entertainment expenditure within the meaning of Explanation 2 to section 37(2A). But the portion spent for the employees is not an entertainment expenditure and, therefore, is not disallowable. Having regard to such a proposition, in our view, the exception is unqualified and it is available where it is given regularly or sporadically or on any particular occasion without attracting the distinction of hospitality or entertainment, if provided in office, factory or other place of their work. Therefore, food a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure within the meaning of section 37(2B) in CIT v. Eskaps (I)(P.) Ltd. [1991] 191 ITR 674, 676 (Cal) without notice to the extended meaning of the word "entertainment expenditure" declared in the newly inserted Explanation 2 by the Finance Act, 1983, with retrospective effect from April 1, 1976. The Andhra Pradesh High Court in CIT v. Andhra Sugars Ltd. [1997] 225 ITR 118, 122, had taken a similar view with regard to expenses incurred on food and beverages provided by the assessee to the employees in office, factory or other places of their work as well as to the customers holding that such expenditure does not fall within the enlarged meaning of entertainment expenditure given in Explanation 2. In relation to customers having regard to the decision in Patel Brothers' case [1995] 215 ITR 165 (SC), ordinary meals being a bare necessity, if provided to outstation customers, can well be within the meaning given by the apex court. The Gujarat High Court in CIT v. Central India Builders [1985] 156 ITR 453 held that messing expenses incurred for employees are not entertainment expenditure. The Rajasthan High Court in CIT v. Anjani Kumar and Co. (P) Ltd. [1997] 227 ITR 786, 789-90 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the previous year is definitely a business expense in connection with the assessee's business entitling him to claim the benefit of section 36(1)(iii) on the interest paid on the borrowed capital to that extent. But the entire amount so advanced was not adjusted against the supplies made during the previous year. Mr. Khaitan contended that this balance amount was adjusted against the interest-free security deposit and payment of advance rent free of interest against the lease obtained in respect of the land of its sister concern at Pondicherry for the purpose of setting up a project in connection with the assessee's business. The negotiation for the lease of the said land was continuing right from the previous year. However, the execution of the deed took place after the closing of the previous year. But pursuant to such negotiation the advances were placed at the disposal of the sister concern. The balance advance so made after adjusting the amount against the supplies were adjusted against the interest-free security deposit and the interest-free advance payment of rent. Therefore, it is allowable for the previous year. Learned counsel for the respondent, on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of interest-free advance rent, it is an expenditure for acquiring a fixed asset, if the terms provide so. It is common knowledge that in case of such transaction sometimes advances, premiums are asked for and in the process it might be paid for advance and free of interest. Therefore, if it can be proved that it was so paid for such purpose and that there was a negotiation going on and there were expenses by payment of advance or deposit of security as one or more of the considerations then it will entitle the assessee to the benefit of the said section. Expenses incurred on borrowals for setting up new factory interconnected with existing business were held to be allowable under this section in Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All). In Addl. CIT v. Aniline Dyestuffs and Pharmaceutical (P) Ltd. [1982] 138 ITR 843 (Bom), it was held that where new the project set up by the assessee was not totally independent of the existing business, interest paid on the loan for such new project was to be allowed as deduction. In CIT v. Granulated Fertilizers and Feeds (P) Ltd. [1982] 137 ITR 400 (Guj), it was held that interest paid on money borrowed to acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for exemption of the agricultural income and that it was spent for religious and charitable purpose and then it was also not proved by separate account or by any verifiable accounts. Therefore, this decision has no manner of application in the facts and circumstances of the present case. Reliance was placed by him in Phaltan Sugar Works Ltd. v. CIT [1995] 216 ITR 479 (Bom). This decision is also distinguishable on facts. Inasmuch as, the capital borrowed was spent not for purchase of machinery as claimed by the assessee. On the facts, it was found that it was intended for the purchase of shares in a foreign company, which cannot be a business expenditure. Next he relied upon CIT v. Sujanni Textiles (P.) Ltd. [1997] 225 ITR 560 (Mad). This is also distinguishable. The borrowed funds were utilised for non-business purpose and, therefore, the interest paid thereon was disallowed. The answer: In the circumstances, we answer the second question in favour of the asses see in the negative to the extent that if the assessee is able to prove that this was an advance for acquiring a fixed asset and was made pursuant to a negotiation undertaken in the previous year as a condition fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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