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TMI Blog1997 (7) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... available in respect of freight and other miscellaneous expenses amounting to Rs. 1,17,569 ?" The assessee-company, H. M. M. Limited, Nabha, was engaged in the manufacture and sale of milk products. The assessee filed a return of income declaring income for the assessment year 1976-77 (accounting period ending on March 31, 1976) at Rs. 2,93,60,200. Question No. 1.-The assessee claimed deduction of the amount paid as surtax. The Assessing Officer, following his order for the preceding assessment year, held that surtax was not an admissible deduction under the Act. The Appellate Assistant Commissioner as well as the Tribunal rejected the assessee's appeal, taking the view that the amount of surtax payable by the assessee under the Companies (Profits) Surtax Act, 1964, was not allowable as a deduction. A Division Bench of this court examined a similar question about the deductibility of surtax in Highway Cycle Industries Ltd. v. CIT [1989] 178 ITR 601 (P & H). This court took the view that surtax was not deductible under the Act. Since the matter has been settled after examination, the question is answered in the affirmative, i.e., against the assessee and in favour of the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of services outside India in the execution of a contract for the supply of goods outside India. These were expenditures on services performed in India. Shri R. P. Sawhney, learned senior counsel for the Revenue, has argued that internal freight charges are neither admissible under sub-clause (iii) nor under sub-clause (viii) in the light of the decision of this court in CIT v. Roadmaster Industries of India Pvt. Ltd. [1993] 202 ITR 968. This view was followed by this court in CIT v. Indo Asian SwitchGears (P.) Ltd. [1996] 222 ITR 772. There is nothing on record to show that the expenditure incurred by the assessee related to the sea freight charges in the execution of a contract for the supply of goods. Therefore, sub-clause (viii) of section 35B(1)(b) is also not attracted. Question No. 3 is answered in the affirmative, i.e., against the assessee and in favour of the Department. Question No. 2.-During the assessment proceedings, the Assessing Officer noticed that the assessee had incurred expenditure on dinner at Rs. 27,297, on liquor (wine and whisky) at Rs. 6,141 and on snacks at Rs. 10,832. The entire expenditure of Rs. 44,270 had been incurred during a conference held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to be entertainment. Holding of the conference was necessary for the purposes of the assessee's business. Shri Mittal has placed reliance on a decision of the Gujarat High Court in CIT v. Patel Brothers and Company Ltd. [1977] 106 ITR 424, in support of the plea that expenditure incurred by the assessee in providing meals to its workers as well as to the workers of its associate firm, was not in the nature of expenditure on entertainment. It was pleaded by the assessee in that case that it was customary out of commercial expediency to provide meals to the farmer customers. The assessee had claimed kitchen expenses for the assessment years 1969-70 to 1971-72. Part of the expenditure was disallowed by the Income-tax Officer on the ground that the expenses incurred on account of providing meals to the farmer customers were in the nature of entertainment. It was held that the expenditure was allowable, being not in the nature of entertainment expenses. Reliance has also been placed by Shri Mittal, learned counsel for the assessee, on a decision of the Karnataka High Court in Addl. CIT v. Bangalore Turf Club Ltd. [1980] 126 ITR 430. That was a case where the assessee-company, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7] 106 ITR 424, and has observed that the wide observations and the elaborate guidelines, given in the Gujarat High Court's decision, were in excess of the broad tests. Though the decision of the Gujarat High Court was affirmed, the wide observations, made therein, were not approved. The Supreme Court referred, with approval, to the following observations of the Delhi High Court in CIT v. Rajasthan Mercantile Company Limited [1995] 211 ITR 400, 416 : "The declaration and the clarification involved in Explanation 2, are only for the purposes of assessments with effect from April 1, 1976. This provision widens the concept of 'entertainment expenditure' by including in its scope such of the expenditure which are otherwise traditionally understood as routine business expenditure incurred in connection with 'business hospitality'. Therefore, the widened meaning cannot be extended to past periods when the amended Explanation 2 was not in operation." The argument of Shri A. K. Mittal, learned counsel for the assessee, that expenditure incurred on the conference should be allowed in full, is, therefore, not acceptable in the light of the amendment made in section 37(2A) of the Act with e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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