JUDGMENT

VENKATACHALA, J.:—Two questions are raised for our decision in this appeal. First, whether the appellant was entitled to claim as allowance under S. 37(1) of the Income-tax Act, 1961 (the I.T. Act) the interest paid by it for delayed payment of sales tax under the Bombay Sales Tax Act, 1951 (the BST Act) and the damages paid by it for delayed payment of contribution under Employees State Insurance Act. 1947 (the ESI Act). Second, whether the appellant was entitled to claim as allowance under S. 37(2) of the I.T. Act the entire expenses incurred by it as entertainment expenses.

2. The appellant is a company carrying on the business in the manufacture of textile goods. It is the assessee. In the Income-tax return of the assessee for the Assessment Year 1966-67 (the previous accounting year being from 1st July, 1964 to 30th June, 1965), the interest and the damages of Rs. 19,635 paid by it for delayed payment, of sales tax under the BST Act and for delayed payment of contribution under the ESI Act, was claimed as revenue expenditure, allowable under S. 37(l) of the I.T. Act. So also the sum of Rs. 3,865 paid by it for entertainment expenses was claimed as revenue expenditure,