JUDGMENT

B. P. JEEVAN REDDY, J.—These appeals are preferred by the Revenue against an order of the Bombay High Court rejecting an application under Section 256(2) of the Income-tax Act. By means of the said application the Revenue sought to raise the following three questions :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission paid by the assessee-company to its directors was an additional remuneration forming part and parcel of the salary allowed to them and that the said remuneration would not be covered by Section 40(a)(v) of the Income-tax Act and thereby allowing the assessees claim for allowing the deduction of the whole amount of commission paid to the directors?

(ii) Whether the Tribunal was right in their view that the words "whether convertible into money or not" used in Section 40(a)(v) of the Act postulated that the benefit, amenity or perquisite mentioned therein covers, benefit, amenity or perquisite allowed in kind but not in cash?

(iii) Whether the Tribunal was right in holding that the expenditure of Rs. 19,386 for the assessment year 1971-72 and Rs. 29,283 for the assessment year 1972-73 did not represent entertainment expenditure within the meaning of Section 37(ii) of the Income-tax Act?"

2. The assessment years concerned herein are 1971-72 and 1972-73. The first two questions go together. The provision applicable for the A.Y. 1971-72 was Section 40(a)(v) whereas for the A.Y. 1972-73, the provision applicable is Section 40A(5) which is a successor provision to Section 40(a)(v).

3. The respondent is a private limited company trading in tractors and earth moving equipment. During the accounting years relevant to the aforesaid assessment years, the assessee paid to three of its Directors commission on sales in addition to salary as follows :

Assessment year Director Salary Commission

1971-72 Sh. S. B. Lal 39,000 36,171

Sh. S. B. Mathur 18,000 36,171

Sh. A. B. Mathur 7,800 36,171

1972-73 Sh. S. B. Lal 39,000 40,792

Sh. S. B. Mathur 18,000 40,792

Sh. A. B. Mathur 7,800 40,792

3A. The commission in the above table means the commission paid to the said Directors on the sales effected by the assessee, at a prescribed percentage. The Income-tax Officer treated the commission on sales as "perquisites" and disallowed the same applying Section 40(a)(v) for the year 1971-72 and Section 40A(5) for the assessment year 1972-73. He also disallowed the expenses referred to in question No. (iii) as entertainment expenses. On appeal, the Assistant Appellate Commissioner held that the commission on sales cannot be treated as "perquisites". He also held that the expenditure on dinner and tea cannot be characterised as entertainment expenditure and ought not to have been disallowed. The Revenue preferred appeals before the Tribunal against the orders of the A.A.C., which appeals were dismissed by the Tribunal following its order dated August 25, 1973 relating to assessment years 1967-68 to 1969-70. The order dated August 25, 1973 dealt inter alia with the questions arising herein and held the same against the Revenue. An application under Section 256(1) was dismissed by the Tribunal.

3B. The first question urged before, us which was also the question urged before the Tribunal - is whether commission on sales (paid in cash) falls within the four corners of Section 40(a)(v)/ Section 40A(5)? It would be appropriate to set out the said provisions in so far as they are relevant:

"Section 40 - Amounts not deductible: -Notwithstanding anything to the contrary in Sections 30 to 38 the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"

(a) in the case of any assessee ..............

" (v) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the assessee in respe