JUDGMENT

J.S.VERMA, J. :—These appeals and the connected matters involve for decision the common question of law relating to the meaning of "entertainment expenditure" in Section 37(2A) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") during the relevant assessment years. The decision of the Gujarat High Court in Commr. of Income-tax Gujarat v. Patel Brothers & Co. Ltd., (1977) 106 ITR 424, on this point is challenged by the revenue in these appeals by a certificate granted under Section 261 of the Act. The connected matters involve the same point. All cases relate to the period prior to 1-4-1976 from which date only explanation 2 inserted in sub-section (2A) of Section 37 by the Finance Act, 1983 was applied retrospectively, even though sub-section (2A) was inserted w.e.f. 1-10-1967 by Taxation Laws (Amendment) Act, 1967.

2. The material facts in these appeals illustrative of all connected matters, are these : The relevant assessment years are 1969-70, 1970-71 and 1971-72 of which the corresponding previous years ended on September 30, 1968, September 30,1969 and September 30,1970 respectively. The assessee, a limited company, claimed kitchen expenses of Rs. 22,301/- Rs. 25,979/- and Rs. 28,620/- respectively for these assessment years as expenses incurred for providing meals to its employees and its customers in the ordinary course of its business as customary trade usage. The Income-tax Officer disallowed the expenditure to the extent of Rs. 10,101/- Rs. 12,979/- and Rs, 17,305/- respectively corresponding to the expenses incurred for meals provided to the customers even though it was found that the meals were ordinary and not in any manner lavish. The assessee preferred an appeal to the Appellate Assistant Commissioner against the partial disallowance of this expenditure. The Appellate Assistant Commissioner held that the meals were bare necessity having regard to the nature of business and, therefore, the Income-tax Officer was directed to grant that allowance. The matter then went in appeal to the Tribunal which confirmed the order of the Appellate Assistant Commissioner. At the instance of the revenue, the Tribunal referred to the High Court for its decision two questions of law, namely,

(1) Whether, on the facts and in the circumstances of the case, the expenditure in question was in the nature of entrainment expenditure in law?

(2) Whether, on the facts and in the circumstances of the case, the expenditure in question would be allowable only to the limited extent of Rs. 5,000/- under Section 37(2A) of the Income-tax Act, 1961, for each of the assessment years under reference?

Identical questions of law were referred for all the three assessment years.

3. The High Court answered both the questions in the negative since it was found on the facts by the Tribunal that indisputably the upcountry constituents of the assessee came to Ahmedabad for the purpose of business with the assessee and having regard to the nature and magnitude of the business of the assessee, it would be necessary for the assessee to make arrangements to provide meals to them while in Ahmedabad for business with it, as it was not the revenues case that the assessee had spent the money for throwing lavish parties for its constituents. It had been found that the expenditure was for serving ordinary meals as a bare necessity of the business. Accordingly, the references were answered against the revenue and in favour of the assessee. These appeals are by certificate against that decision. The same question is involved for decision in the connected matters.

4. There is a conflict in the view taken by the High Courts on the main question. The view taken by the High Courts of Andhra Pradesh, Rajasthan, Madhya Pradesh and Karnataka is the same as that of the Gujarat High Court. The contrary view has been taken by the High Courts of Allahabad, Punjab & Harayana, Patna and Kerala. The decision of the Delhi High Court in Commr. of Income-tax v. Raj