TMI Blog1979 (7) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... istered firm carrying on business in cloth on wholesale basis. The firm filed a return declaring an income of Rs. 1,45,730. The ITO found that under the item of miscellaneous expenses, there was a sum of Rs. 12,495 which had been spent on the supply of coffee, tea, etc., to the customers. In the ITO's view, this constituted entertainment expenditure and, therefore, disallowable under s. 37(2B). The AAC, on appeal, upheld this order. The Tribunal on further appeal held that the expenditure incurred was an obligatory one due to the exigencies of the business and it cannot be described as an expenditure in the nature of entertainment expenditure. It, therefore, directed allowance of the amount and that is how this matter came before this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim and the matter was, therefore, brought before the Gujarat High Court. It was held after referring to the meaning of the term " entertainment " in the various legal dictionaries, that the meaning of the term was to receive and treat with hospitality, which broadly means receiving and entertaining guests in a friendly, generous and liberal way. It was observed at page 434 thus : " The term 'entertainment' in the context of section 37(2A) and (2B) of the Income-tax Act, 1961, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acts done in discharge of such obligation cannot be included and covered in the term 'entertainment' without violence to language. " The Kerala High Court considered this question in CIT v. Veeriah Reddiar [1977] 106 ITR 610 [FB]. The assessee was carrying on business in piece goods on wholesale and retail basis in Alleppey and two other places. In his books were found entries for expenses incurred in supplying to its customers cigarettes, coffee and sometimes meals. The ITO disallowed this expenditure and the matter came on reference to the High Court at the instance of the CIT as the Tribunal had allowed the expenditure. The decision of the Gujarat High Court was considered, but dissented from. Reference was made to an earlier decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as came and dwelt with the assessee. The Bombay High Court followed the decision of the Gujarat High Court and dissented from the decisions of the Kerala and Allahabad High Courts. In the course of the judgment, at page 296, it was observed : " Anybody having even a general idea of the business of Pakki adat is aware of the fact that it is an essential condition of his business, if not express, in any event necessarily implied, to provide messing and lodging to the constituents who come from outside only for a duration of one or two days for the purposes of business. Any expenditure incurred for providing messing to such customers or constituents or offering of tea and pan to them is actually an essential part of business and does not par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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