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TMI Blog1994 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982) are as follows: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the entire expenditure of Rs. 3,44,316 was incurred wholly and exclusively for the purpose of the assessee's business and no part of this expenditure was to be disallowed as being in the nature of entertainment expenditure ?" 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that borrowed money formed part of the capital employed for purposes of computing deduction allowable under section 80J ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing that the average capital for purposes of section 80J should be computed on the basis of the decision of the Calcutta High Court in Century Enka Ltd. v. ITO [1977] 107 ITR 123 (Cal) ? "4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure of Rs. 92,777 incurred in connection with the foreign tour of Dr. Bharat Ram is an allowable expense ? " As regards the two questions referred at the instance of the assessee and questions Nos. 2 and 3 referred at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; -------- 5,83,698." -------- The entire expenditure was claimed by the assessee as revenue expenditure on the plea that the purpose of the inaugural function was to advertise and to bring to the notice of the public at large that the company had successfully commissioned a large scale plant for the manufacture of fertilizers, which was a matter of pride not only for the company but also for India and Japan. In other words, the claim of the assessee was that the expenditure was on advertisement and publicity. While framing the assessment for the relevant assessment year, the Income-tax Officer went into the details of these expenses and held that except for the expenses incurred for advertisement in newspapers (Rs. 2,13,479) and on gif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable for the relevant assessment year as well. On the other hand, Mr. O. P. Vaish, learned counsel for the assessee, while deriving support from three decisions of this court in CIT v. Supreme Motors (P.) Ltd. [1984] 147 ITR 48; Santlal Kashmirilal v. CIT [1986] 157 ITR 422 and Modi Spinning and Weaving Mills Co. Ltd. v. CIT [1993] 200 ITR 544 and a decision of the Calcutta High Court in CIT v. Hindusthan Aluminium Corporation Ltd. [1989] 176 ITR 206, has submitted that no part of the expenditure incurred on the inaugural function could be regarded as entertainment expenditure as contemplated by section 37(2B) of the Act. For the purpose of the present reference, we feel it is not necessary to go into the history of the relevant provisions relating to the entertainment expenditure. Suffice it to say that the steps initiated in the direction of gradually controlling these expenses by prescribing ceiling limits on the entertainment expenditure reached their crescendo in the year 1970, when by the Finance Act, 1970, sub-section (2B), was inserted in section 37 of the Act prohibiting deduction of entertainment expenditure altogether, if incurred within India after February 28, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, and, therefore, the expenditure in the said assessment years did not come within the mischief of the said Explanation. Even the Central Board of Direct Taxes, in its circular dated December 8, 1983, has also clarified that the said Explanation will apply in relation to the assessment year 1976-77 and subsequent years. In the instant case, the expenditure in question having been incurred prior to April 1, 1976, the said Explanation shall not be applicable. The argument of learned counsel for the Revenue is, therefore, devoid of any merit and is accordingly rejected. Coming to the main question, the terms "entertainment" or "entertainment expenditure" have not been defined in the Act but these terms have been considered and interpreted by the courts in the context of section 37(2A) and (2B) of the Act. In CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424, the Gujarat High Court had the occasion to consider the question of allowability of an expenditure under sections 37(2A) and 37(2B) of the Act. The court considered the meaning of the expressions "entertainment" and "hospitality" and came to the conclusion that every act of entertainment included hospitality but every hospit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clarification in the form of Explanation 2, inserted in the section by the Finance Act, 1983, because if the scope of the latter expression was intended to be wider than the expression "entertainment expenditure", the Legislature would not have used that expression in the said Explanation instead of the latter. The next question for determination is as to what particular item of expenditure can be said to amount to an expenditure in the nature of entertainment. Here again we agree with the observations of the Gujarat High Court in Patel Brothers' case [1977] 106 ITR 424 to the effect that it is difficult to lay down a hard and fast strait-jacket formula so as to answer various contingencies arising from time to time as to what expenses could be classified as entertainment expenses in the context of the provisions of the Act in vogue at the relevant time. In our opinion, the answer to the question will depend on the facts of each case as many factors like the purpose or the occasion, their nature and quantum and the persons on whom such expenses are incurred will have to be taken into account, which may vary from case to case. Broadly speaking, we feel, that an expenditure which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f entertainment expenditure and was incurred wholly and exclusively for the purpose of the assessee's business and is allowable as revenue expenditure. As regards question No. 4, learned counsel for the Revenue fairly concedes that in view of the decision of this court in the case of the assessee itself, reported as Delhi Cloth and General Mills Co. Ltd. v. CIT [1986] 158 ITR 64, wherein it has been held that expenses incurred by an assessee for attending a business conference by its employee would be deductible as business expenditure, the question requires to be answered in the Tribunal that the expenditure incurred by the assessee on the inaugural function was not in the nature of entertainment expenditure and was incurred wholly and exclusively for the purpose of the assessee's business and is allowable as revenue expenditure. As regards question No. 4, learned counsel for the Revenue fairly concedes that in view of the decision of this court in the case of the assessee itself, reported as Delhi Cloth and General Mills Co. Ltd. v. CIT [1986] 158 ITR 64, wherein it has been held that expenses incurred by an assessee for attending a business conference by its employee would be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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