TMI Blog1988 (12) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... g so, it also followed a decision of this court in Brij Raman Dass and Sons v. CIT [1976] 104 ITR 541. The result was that the order passed by the Appellate Assistant Commissioner was set aside and the order passed by the Incometax Officer disallowing the claim of the assessee was restored. Thereafter, at the instance of the assessee, the following question was referred for the opinion of this court under section 256(1) of the Act : "Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 7,190 could be disallowed under section 37(2B) of the Act. " When the matter came up for hearing before a Division Bench of this court, it found that there is a divergence of judicial opinion on this question and the leading case which takes a contrary view was the case of CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424 (Guj). It accordingly felt that while deciding Brij Raman Dass' case [1976] 104 ITR 541, this court had interpreted the word "entertainment" in a literal sense but as the amount was spent in providing food to the customers, it was nothing more than extension of common courtesy to a visitor who comes to the assessee in connection with his busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, consistently taken the view, as was held in the case of Brij Raman Dass and Sons v. CIT [1976] 104 ITR 541 (All) and has relied on the subsequent cases decided by this court in the cases of CIT v. Manoo Ram Ram Karan Dass [1979] 116 ITR 606, CIT v. Kunji Lal Dhanpat Rai [1979] 116 ITR 608 and CIT v. Modi Spinning and Manufacturing Mills Co. Ltd. [1980] 125 ITR 361. The moot question, therefore, that falls for consideration before us is as to whether the amount in question spent by the assessee would come within the expression "expenditure in the nature of entertainment expenditure" occurring in section 37(2A) and (2B) of the Act. To consider and answer this question, therefore, it is imperative to go into the legislative history of section 37 of the Act and the object underlying the introduction of section 37(2B) of the Act. Under the Indian Income-tax Act, 1922, any amount spent by the assessee for the entertainment of its business constituents and customers was an allowable expenditure under the head "Profits or gains of any business, profession or vocation carried on by an assessee" by virtue of section 10(2)(xv) of the said Act on the ground that such hospitality and ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any assessee after the 28th day of February, 1970." Since the year in dispute involved is the assessment year 1974-75, the restrictive provisions of this newly added sub-section (2B) of the Act as added above in the year 1970 apply with full force. It may be that entertainment given to an elongated and lavish extent has come to be an integral part in the competitive business world. There is no escape from the reality of the situation that even large respectable business houses as also relatively smaller entrepreneurs, because of business compulsions, have to resort to entertainment of their clients in the interest of their business. In business morality, this has come to be accepted as its normal social mores. But, while construing the provisions of section 37, sub-sections (2A) and (2B), it is relevant to find out as to what led Parliament to introduce the said sub-sections and what is the designed and considered use of the express phraseology by Parliament. The words used are not "entertainment expenditure" simpliciter but the phrase deliberately employed is "in the nature of entertainment expenditure.". In the "Notes on Clauses", clause 10 of the Finance Bill, 1970 is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation Laws (Amendment) Act, 1978, thereby providing curb on expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. However, this amendment of the year 1978 is not concerned with "entertainment expenditure" at all Now let us advert to the divergent views on the question of allowing entertainment expenditure. The earliest case in point is a decision of the Allahabad High Court in the case of Brij Raman Dass and Sons v. CIT [1976] 104 ITR 541. In this case, the Bench repelled the contention of the assessee that the word "entertainment" does not include the provision of refreshment, but is confined to amusement and "gratification of some sort other than food, meat and drink". Reliance for the purpose was placed upon the meaning of the word "entertainment" given in various dictionaries. The court found that the word "entertainment" has not been defined in the Income-tax Act and, therefore, will have to be given its general meaning. It was held as under (at p. 544). "An 'entertainment expenditure would, in our opinion, include all expenditures incurred in connection with business on the entertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to how gradually such restrictions were imposed on the allowability of such entertainment expenditure, the Kerala High Court held at pages 616 and 617 of [1977] 106 ITR as under : "It is important to note that, instead of merely using the expression 'entertainment expenditure', the words actually used by Parliament in subsections (2A) and (2B) are 'expenditure in the nature of entertainment expenditure'. The later 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 so as to bring within the scope of the two sub-sections all types of expenditure in respect of which there can be said to be certain elements which invest them with the nature of entertainment expenditure." It differed from the view of the Gujarat High Court on the basis of the legislative history as traced above in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hospitality, even though it is modest or frugal also. Sub-sections (2A) and (2B) of section 37 of the Act begin with a non obstante clause, viz., "notwithstanding anything contained in sub-section (1)" and take within their sweep all expenditure which is in the nature of entertainment expenditure incurred by an assessee. Therefore, whatever the amount of business entertainment expenses may be, the same is subject to the stringent rule laid down in the aforesaid two subsections (2A) and (2B). The statute in this connection has left no exception as to whether the expenditure is of a high level or moderate or it is plausible leash. If the provision is construed otherwise, that will defeat the very purpose of the Legislature in enacting the aforesaid sub-sections and defeat the larger legislative intent of curbing entertainment expenditure at the cost of the public exchequer. Therefore, after considering the reasoning adopted in the divergent views of the various High Courts in the leading case of Brij Raman Dass and Sons [1976] 104 ITR 541 (All), taking the view that such an expenditure is not allowable and the contrary view taken by the Gujarat High Court in the case of CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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