TMI Blog1976 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to this reference are as follows : We are concerned with the assessment year 1967-68. The assessee is a private limited company. It claimed two amounts, namely, Rs. 22,098 and Rs. 45,539 by way of entertainment expenses and guest expenses, respectively. Going into the details of these expenses, the ITO found that the actual entertainment expenditure incurred for the customers was only Rs. 5,527 and the balance represented various other expenses. The details of guest expenses of Rs. 45,539 included, apart from expenses, that is, salaries, etc., a sum of Rs. 38,229 under the head " food ", etc., expenses. The ITO treated the sums of Rs. 5,527 and Rs. 38,229 as coming under the head of " entertainment expenditure " and limited this expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the business. Even if a part of it was on account of drinks, etc., supplied to foreigners, it was not in the nature of entertainment. Against the order of the AAC, the revenue carried the matter in appeal before the Income-tax Appellate Tribunal and there it was contended by the revenue that even an item of expenditure incurred for business purposes if it amounts to entertainment expenses must be disallowed except to the extent permitted by law. The Tribunal analysed the decisions on the point and the word " entertainment " as found in the dictionary and relevant decisions. It held that the word " entertainment " would include refreshment as also amusement. Having in view the purpose of the restriction introduced in s. 37(2), the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 was incurred by the assessee by way of entertainment expenditure. At page 338, Tulzapurkar J. emphasised the non-obstante clause occurring in s. 37(2) which says, notwithstanding anything contained in sub-s. (1) of s. 37, no expenditure in the nature of entertainment expenditure shall be allowed beyond certain specified limits. He observed (p. 338): In other words, notwithstanding the fact that the expenditure might have been laid out or expended wholly or exclusively for the purpose of business, if such expenditure is in the nature of 'entertainment expenditure' the same is not to be allowed beyond the specified limit. On the face of it the two items of Rs. 9,128 and Rs. 27,318 were incurred by way of meeting hotel bills for lodging an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dom is to be found. We think that it would be over simplification of the problem to accept the broad submission made on behalf of either of the parties. We do not think that we would be justified in laying down any formula so as to provide readymade answer to this problem ; but in the context of legislative intent evinced from the gradual evolution of the present provisions contained in s. 37(2A) and (2B), we venture to indicate a few broad tests so as to facilitate a tax payer to understand and the revenue to determine the nature of entertainment expenses though in each case in the ultimate analysis it would be a question of fact depending on many factors, more particularly in the absence of a well-defined scheme in the Indian statute. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earn money from business these foreign visitors had to be put up and reasonable facilities for their accommodation, food, drink, etc., within reasonable limits had to be provided so that the company can carry on its business of exporting tobacco from India. In these circumstances, the case of the present assessee would fall within category (b) mentioned in the above passage from the judgment of the Gujarat High Court, namely, provision of food, drinks, etc., to client, constituent or customer in the nature of bare necessity or by way of ordinary courtesy or as an express or implied term of the contract. It is nobody's case that the guest houses were run on a lavish scale looking particularly to the needs of customers from abroad. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports and industrial development. It is high time that the two departments, one of direct taxes and the other of promotion of export and industries, should work in harmony and lay down policy decisions which would work in harmony with each other. We are constrained to make this observation because of the conflicting interests of the two departments of the Government of India. In these circumstances, we answer the question referred to us as follows : The amount of Rs. 38,229 spent by the assessee on the guests can be allowed under s.37(1) of the I.T. Act, 1961. The question. is, therefore, answered in favour of the assessee and against the revenue. The Addl. CIT will pay the costs of the assessee. Advocate's fee Rs. 250. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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