TMI Blog1996 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961? " The assessee is a private limited company carrying on the business of processing and sale of tobacco. It claimed deduction of Rs. 17,336 said to have been the expenditure on the cost of mess of foreign customers. Holding that the said expenditure, except Rs. 5,000, was in the nature of entertainment expenditure and was not allowable, the Income-tax Officer added that amount in the income ; however, he found that Rs. 5,000 would not fall within the meaning of " entertainment expenditure " under section 37(2A) of the Income-tax Act, 1961 (for short, " the Act "). Thus, the dispute is with regard to Rs. 12,336, which was disallowed. The assessee appealed to the Commissioner of Income-tax (Appeals) who accepted the ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-sections (1) and (2), no allowance shall be made in respect of so much of the expenditure in the nature of " entertainment expenditure " incurred by any assessee during any previous year which expires after September 30, 1967, as is in excess of the aggregate amount computed thereunder. It follows that the amount spent on entertainment of the customers is scaled down for the purposes of making it an allowable expenditure. While so, this court in Maddi Venkataratnam and Co. Ltd.'s case [1979] 119 ITR 514 took the view that the amount spent by the assessee in the accounting year relevant to the assessment year 1967-68 on the guests could be allowed under section 37(1) of the Act. That judgment was rendered on August 20, 1976, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is commercial or professional expediency. The phrase ' in the nature of entertainment expenditure ' encompasses within its ambit entertainment expenditure proper as well as expenditure akin to it, partaking of some, if not all, of the characteristics of entertainment expenditure. Even lavish or frugal hospitality is none the less hospitality. The income-tax authorities have to minutely scrutinise the accounts in each case item-wise and see whether the expenditure by the assessee is wholly and exclusively for the purpose of the business or profession or whether it is in the nature of entertainment expenditure. Even if it comes under sections 37(1), 37(2) and 37(2A), it has still to be investigated whether it is reasonable expenditure. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h may be beneficial for mental or physical well being but is not essential or indispensable for human existence. A bare necessity, like an ordinary meal, is essential or indispensable and, therefore, is not ' entertainment '. If such a bare necessity is offered by another, it is hospitality but not entertainment. Unless the definition of ' entertainment ' includes hospitality, the ordinary meaning of ' entertainment ' cannot include hospitality. For this reason, the expenditure incurred in extending customary hospitality by offering ordinary meals as a bare necessity, is not ' entertainment expenditure '." But it was made clear that that was the position of law before Explanation 2 was inserted with effect from April 1, 1976. It may be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, it has already been pointed out that it relates to the assessment year 1976-77. Therefore, Explanation 2, referred to above, would apply to the facts of the case and any expenditure incurred by the assessee in the nature of " business hospitality " of every kind would now be within the ambit of " entertainment expenditure ". In this case, the appellate authority and the Tribunal have recorded the finding that the expenditure incurred by the assessee was for providing " business hospitality " to the foreign customers who visited the assessee's business premises and, therefore, it could not be regarded as " entertainment expenditure ". Having regard to the provisions of section 37(2A) of the Act as they stood on the date of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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