The main legal point established in the judgment is that expenditure incurred on serving coffee and tea to customers during business hours as a matter of courtesy does not constitute entertainment expenditure within the meaning of section 37(2B) of the Income Tax Act, 1961.

D.M. Chandrashekhar, C.J.—At the instance of the revenue, the Income Tax Appellate Tribunal, Bangalore Bench (hereinafter referred to as "the Tribunal"), has referred under s. 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), the following question of law:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure incurred by the assessee in a sum of Rs. 20, 278 does not constitute expenditure in the nature of entertainment expenditure within the meaning of section 37(2B) of the Income Tax Act, 1961 ?"

2. In para 2 of the statement of the case the material facts have been set out. They are: The assessee is a banking company having more than one hundred branches. Its important customers who come to its head office and branches for transacting business were served with coffee or tea. During the year in question the total expenditure incurred on serving coffee and tea was only Rs. 20, 278. This works out at an average about Rs. 200 per branch per year.

3. The ITO disallowed such expenditure on the ground that it came within the ambit of sub-s. (2B) of s. 37, which reads:

"Notwithstanding anything contained in this section, no allowance shall be made in respect of expenditure in the nature of entertainment expenditure incurred within India by any assessee after the February 28, 1970."

4. The object of inserting sub-s. (2B), as explained by the Finance Minister, while presenting the Budget for the year 1970-71, was to curb ostentation and extravagance at the expense of the revenue. The Finance Minister observed:

"Those who enjoy the hospitality of their business friends should now no longer find their sense of gratitude diminished by the thought that a part of the hospitality is really paid for by the Exchequer."

5. The term "entertainment", occurring in s. 37(2B), has not been defined in the Act. In the absence of any definition, that word should be understood according to its ordinary meaning and in the context in which it is used in that sub-section. Coffee and tea were not served by the assessee to its customers at any reception or entertainment party to which they had been invited, but were served in the course of the assessee's business and during business hours as a matter of courtesy. There was no formal relationship of guest and host between the bank and its customers. In these circumstances, it would be too pedantic to say that serving a cup of coffee or tea to a customer who comes to the bank during business hours for transacting business, constituted entertainment. It would be more reasonable to treat the expenditure on serving coffee and tea as expenditure incidental to the assessee's business. Hence, such expenditure should be regarded as coming within the ambit sub-s. (1) and not sub-s. (2B) of s. 37.

6. As a result of out foregoing discussion, our answer to the question referred to us in the affirmative, i.e., against the revenue and in favour of the assessee.

7. However, there will be no order as to costs in this reference.