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1985 Supreme(Raj) 134
High Court Of Rajasthan
Judgename : S.K. Mal Lodha,Sobhag Mal Jain
Pratap Cotton Trading Company - Appellant
Versus
Commissioner of Income tax - Respondent
Income tax Reference No. 17 of 1978
Decided On : 07/15/1985
Appearance :
Vineet Kothari, for the Appellant
B.R. Arora, for the Respondents
Messing expenses incurred on supplying food, coffee, tea, etc., to customers are not entertainment expenses under Section 37(2B) of the Income Tax Act, 1961, if they are not incurred for the purpose of entertaining customers or promoting goodwill.
Headnote:
INCOME TAX - Entertainment expenditure - Messing expenses incurred on supplying coffee, tea, etc., to customers - Whether in the nature of entertainment expenditure - Hotel expenses - Whether business expenditure - Sections 37(2A) and (2B) of the Income tax Act, 1961.
Fact of the Case:
The assessee, a tea business, claimed messing expenses and messing allowance for supplying food, coffee, tea, etc., to its customers. The Income Tax Officer disallowed the claim under Section 37(2B) of the Income Tax Act, 1961, treating it as entertainment expenditure. The Appellate Assistant Commissioner allowed a portion of the claim, but the Tribunal held that the expenses were in the nature of entertainment expenditure and disallowed them. The assessee also claimed hotel expenses of Rs. 809, which were disallowed by the Tribunal.
Finding of the Court:
The court held that the expenses incurred by the assessee for supplying food, coffee, tea, etc., to its customers cannot be characterized as entertainment expenses under Section 37(2B) of the Act. The court also upheld the Tribunal's decision to disallow the hotel expenses of Rs. 809, as the assessee failed to provide details or show how it was a business expenditure.
Issues: 1. Whether the messing expenses incurred on supplying coffee, tea, etc., to customers were in the nature of entertainment expenditure and not business expenditure, under Section 37(2A) and (2B) of the Income Tax Act, 1961? 2. Whether the hotel expenses of Rs. 809 were a business expenditure.
Ratio Decidendi: The court applied the tests laid down in Patel Bros. & Co. Ltd.'s case [1977] 106 ITR 424 (Guj) to determine the nature of entertainment expenses. The court held that the expenses incurred by the assessee for supplying food, coffee, tea, etc., to its customers were not entertainment expenses as they were not incurred for the purpose of entertaining customers or promoting goodwill. The court also held that the assessee failed to provide details or show how the hotel expenses of Rs. 809 were a business expenditure.
Final Decision: The court answered the first question in the negative, in favor of the assessee and against the Revenue. The court answered the second question in the affirmative, in favor of the Revenue and against the assessee.
S.K. Mal Lodha, J.-The Income tax Appellate Tribunal, Jaipur Bench, Jaipur (for short “the Tribunal”), has referred the following two questions for the opinion of this Court: “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the messing expenses incurred on supplying coffee, tea, etc., to the customers were in the nature of entertainment expenditure and not business expenditure, vide Section 37(2A) and (2B) of the Income tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing hotel expenses of Rs. 809 treating the same as not a business expenditure?”
2. The assessment years involved are 197 1-72, 1973-74 and 1974-75. The assessee used to supply bare meals to the constituents who visited the business premises of the assessee. For the assessment year 1971-72, he claimed messing expenses and messing allowance to the tune of Rs. 11,153. The Income tax Officer, in accordance with the provisions of Section 37(2B) of the Income tax Act, 1961 (for short “the Act”), disallowed the claim. For the assessment year 1973-74, he disallowed the messing expenses to the tune of Rs, 11,000 out of a total claim of Rs. 21,308. He also disallowed the hotel expenses amounting to Rs. 809. For the assessment year 1974-75, the Income tax Officer disallowed the expenses to the extent of Rs. 12,000. Appeals were filed. The Appellate Assistant Commissioner was of the view that the expenses incurred for the supply of meals to the constituents were not in the nature of entertainment expenses. He, however, allowed the claim to the extent of Rs. 5,000, Rs. 6,000 and Rs. 6,000 in respect of the assessment years 197 1-72, 1973-74, and 1974-75 respectively.
3. Being dissatisfied, the assessee preferred further appeals in respect of the aforesaid assessment years. The Tribunal, after examining CIT vs. Veeriah Reddiar [1977] 106 ITR 610(Ker) [FB], BrijRaman Dass and Sons vs. CIT [1976] 104 ITR 541 (All) and CIT vs. Patel Brothers and Co. Ltd. [1977] 106 ITR 424 (Guj), came to the conclusion that the messing expenses and the expenses incurred for supply of coffee, tea etc., to the customers who visited the assessee’s place of business could not be allowed as expenditure incurred wholly and exclusively for the purpose of the tea business and, as such, the expenses are in the nature of entertainment expenses as envisaged by Section 37(2B) of the Act. So far as the claim for Rs. 809 regarding hotel expenses was concerned, the Tribunal directed that the assessee has not been successful in establishing as to how and in what circumstances these expenses can be treated as business expenditure. It, therefore, reached the conclusion that the amount claimed by the assessee cannot be allowed as business expenditure. At the instance of the assessee, the Tribunal has referred the aforesaid two questions for our opinion.
4. We take up the first question first, which need not detain us long, for, it is covered by a decision rendered in Devichand Bastimal vs. CIT (D.B. Income tax Reference No. 9 of 1977) and Bhanwarlal Manakchand vs. CIT
(D.B. Income tax Reference No. 42 of 1977) since reported in [1985] 156 ITR 166 (Raj), decided on April 24, 1985, to which one of us (S.K. Mal Lodha J.) was a party. After taking into consideration the provisions of Section 37(2A) and (2B) of the Act, and also Brij Raman Dass’ case [1976] 104 ITR 541 (All), CIT vs. Paid Bros. & Co. Ltd. [1977] 106 ITR 424 (Guj), CIT vs. Veeriah Reddiar [1977] 106 ITR 610 (Ker) [FB] and Shah Nanji Nagsi’s case [1979] 116 ITR 292 (Bom), the Division Bench has observed as under (p. 175): “There is, thus, no doubt that there are two divergent views on the question relating to entertainment expenditure : one taken in Patel Bros. & Co. Ltd.’s case [1977] 106 ITR 424 (Guj) and the other taken in Veeriah Reddiar’s case [1977] 106 ITR 610 (Ker) [FB] . The tests that have been laid down in Pate
