TMI Blog2007 (9) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ordinary meals to outstation customers according to the established business practice, was a permissible deduction in spite of sub-section (2A) of section 37, to which the assessees were entitled in the computation of their income for the purpose of payment of tax under the Income-tax Act, 1961, during the relevant period prior to April 1, 1976 – decided in favor of assessee. - 43 of 1999 - - - Dated:- 18-9-2007 - DIPAK MISRA and S. C. SINHO JJ. Rohit Arya with Sanjay Lal for the Commissioner. A. K. Shrivastava for the assessee. JUDGMENT The judgment of the court was delivered by DIPAK MISRA J. - This court in I. T. R. No.104 of 1996, dated August 4,1997, directed the Income-tax Appellate Tribunal, Jabalpur (for sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 263 of the Act and came to hold that the permissible deduction should stand restricted to Rs. 5,000 and the rest of the sum should be disallowed. Being of this view, he set aside the order of assessment and directed the Assessing Officer to reframe the assessment. 4. Being dissatisfied with arid aggrieved by the order of the Commissioner passed under section 263 of the Act the assessee preferred an appeal before the Tribunal. The Tribunal came to hold that the expenditure was incurred for providing the messing facility to the workers by the assessee and as per the language of section 37(2A) of the Act such expenditure would not be regarded as entertainment. The Tribunal set aside the order of the Commissioner and uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant point of time. The provision, which is relevant for the present purpose, reads as under: "37 General.- (1) Any expenditure (not being expenditure of the nature prescribed in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession.' (2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:-… (2A) Notwithstanding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dships referred to section 37 and Explanation 2 which we have reproduced above, and thereafter expressed the view as under (page 172): "The object of sub-section (2A) is to disallow any lavish expenditure in the form of business expenditure. This is obvious from the several amendments made in the provision from time to time. It is so understood even in the circular issued by the Board. The object of the provision clearly is to allow deduction of the essential business expenditure incurred due to commercial expediency and according to the trade usage excluding the lavish expenditure. The dispute in the present cases relates only to the amount which has been held to be essential business expenditure of this kind incurred in providing ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 1, 1976, is excluded. If Explanation 2 was merely clarificatory of the ordinary meaning as contended by learned counsel for the Revenue, it was unnecessary to restrict its retrospective application in this manner only from April 1, 1976. The construction we have made of sub-section (2A) of section 37 as it existed during the relevant assessment period cannot, therefore, be affected by Explanation 2 to sub-section (2A) which was inapplicable during the relevant period. In our opinion, the construction we have made of the provision as it existed during the relevant period flows not merely from the language of the provision but also matches with the object thereof. It means that the expenditure incurred by the assessees in providing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent have been increased consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect less than Rs. 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board's circular dated March 27, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect." 14. Judged from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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