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1991 Supreme(HP) 12
High Court Of Himachal Pradesh
P.C.BALAKRISHNA,DEVINDER GUPTA
COMMISSIONER OF INCOME-TAX, PATIALA Revenue - Appellant
Versus
MOHAN MEAKIN BREWERIES LTD., - Respondent
Reference No. 2 of 1977
Decided On : 01/14/1991
For the Revenue :Shri Inder Singh, Advocate. For the assessee:Shri K. D. Sood, Advocate.
The expression "expenditure in the nature of entertainment expenditure" in sub-section (2-B) of section 37 of the Income-tax Act, 1961, has a wide connotation and includes expenditure on provision of hospitality of every kind by the assessee.
Headnote:
INCOME TAX - Entertainment Expenditure - Whether expenses incurred by assessee on Hotel bills, travelling and taxi expenses and presentation items for the assessees guests, suppliers and customers fell outside the purview of the provisions of section 37 (2-B) of the Income-tax Act, 1961? - Whether the Tribunal has rightly held that Rs 25, 50 as expenditure incurred on eating facilities by the assessee to its customers did not constitute entertainment within the meaning of section 37 (2-B) ?
Fact of the Case:
The assessee, a manufacturer and seller of bear, Indian Made Foreign Liquor, Malt, breakfast food and soft drink etc., claimed certain expenses as business expenditure, including expenses on Hotel bills, travelling and taxi expenses and presentation items for the assessees guests, suppliers and customers, as well as Rs 25, 50 as expenditure incurred on eating facilities by the assessee to its customers. The Income-tax Officer disallowed the entire claim, while the Appellate Assistant Commissioner allowed half of the amount claimed as business expenses. The Tribunal upheld the decision of the Appellate Assistant Commissioner, holding that the expenses amounting to Rs. 49,753 under the Head "Hotel expenses, travelling and taxi expenses and presentation items for the companys Guests, suppliers and customers" fell outside the purview of the provisions of sub-section (2-B) of section 37 and that the balance amount of Rs 25,250 was not hit by the provisions of said sub-section as the expenses represented eating facilities provided by the assessee to its customers and the expenses such as these did not constitute entertainment expenses within the meaning of provisions of sub-section (2-B) of section 37 of the Act.
Finding of the Court:
The Court held that the expenses incurred by the assessee on Hotel bills, travelling and taxi expenses and presentation items for the assessees guests, suppliers and customers fell within the purview of the provisions of section 37 (2-B) of the Income-tax Act, 1961, and that the Tribunal erred in holding that Rs 25, 50 as expenditure incurred on eating facilities by the assessee to its customers did not constitute entertainment within the meaning of section 37 (2-B).
Issues: 1. Whether the expenses incurred by the assessee on Hotel bills, travelling and taxi expenses and presentation items for the assessees guests, suppliers and customers fell outside the purview of the provisions of section 37 (2-B) of the Income-tax Act, 1961? 2. Whether the Tribunal has rightly held that Rs 25, 50 as expenditure incurred on eating facilities by the assessee to its customers did not constitute entertainment within the meaning of section 37 (2-B) ?
Ratio Decidendi: The Court interpreted the phrase "expenditure in the nature of entertainment expenditure" in sub-section (2-B) of section 37 of the Income-tax Act, 1961, and held that it has a wide connotation and includes expenditure on provision of hospitality of every kind by the assessee. The Court relied on the legislative history of the provision, the introduction of Explanation 2 to sub-section (2-A) of section 37 by Finance Act of 1983, and the decision of the Full Bench of Kerala High Court in Commissioner of Income-tax, Kerala v. Veeriah Reddiar, (1977) 106 ITR 610 (Ker).
Final Decision: The Court answered both questions in the negative, holding that the expenses incurred by the assessee were not allowable as business expenditure under section 37 (2-B) of the Income-tax Act, 1961.
Devinder Gupta, J.—The Income-tax Appellate Tribunal, Chandigarh Bench has referred the following two questions of law to this Court under section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act):— "1. Whether the Tribunal has been right in law in holding that the expenses amounting to Rs. 49,750 under the heads Hotel bills, travelling and taxi expenses and presentation items for the assessees guests, suppliers and customers fell outside the purview of the provisions of section 37 (2-B) of the Income-tax Act, 1961?
Whether the Tribunal has rightly held that Rs 25, 50 as expenditure incurred on eating facilities by the assessee to its customers did not constitute entertainment within the meaning of section 37 (2-B) ?"
2. The facts necessary, in brief, are that the assessee, who is carrying on the business of manufacture and sale of bear, Indian Made Foreign Liquor, Malt, breakfast food and soft drink etc. and has a number of branches at various places, on August 9, 1972, filed its return for the assessment year 1972-73 declaring an income of Rs 2,11,30,600. Assessment under section 143(3) of the Act was done on January 25, 1974, on an income of Rs. 2,17,39,290. The assessee debited an amount of Rs. 2,58,387 as expenditure -under the Head "Entertainment" in its various branches and claimed that an amount of Rs. 1,29,193 was allowable as business expenditure and the balance of Rs. 1,29,193 not allowable, in view of sub-section (2-B) of section 37 of the Act being in the nature of entertainment expenditure. The Income-tax Officer disallowed the entire claim of Rs. 2,58,387 on the ground that the expenses in question were either on the Guest Houses maintained by the assessee or on food and refreshment to its customers, suppliers and others coming to it in connection with business activities. The matter was taken up in appeal to the Appellate Assistant Commissioner by the assessee, who held that out of assessees claim of Rs 1,29,193, half of the amount of Rs. 2,58,387, a sum of Rs. 750 0 represented expenses for the purpose of business and accordingly allowed a sum of Rs. 75,000 out of the said expenses. The assessee accepted the decision in appeal but the revenue came up in further appeal before the Tribunal which upheld the decision of Appellate Assistant Commissioner by dismissing its appeal and holding that the amount of Rs. 75,000 constituted business expenses. It took the view that the expenses amounting Rs. 49,753 under the Head "Hotel expenses, travelling and taxi expenses and presentation items for the companys Guests, suppliers and customers" fell outside the purview of the provisions of sub-section (2-B) of section 37 and for the balance amount of Rs 25,250, it held that the same was not hit by the provisions of said sub-section as the expenses represented eating facilities provided by the assessee to its customers and the expenses such as these did not constitute entertainment expenses within the meaning of provisions of sub-section (2-B) of section 37 of the Act. The Tribunal, while upholding the allowance of Rs, 25,250, placed reliance upon a decision of Gujarat High Court in Commissioner of Income tax, Gujarat-II v. Patel Brothers and Co. Ltd., (1977) 106 ITR 424 (Guj).
3. The Commissioner of Income-tax sought a reference to this Court and the Tribunal has referred the two questions reproduced above. The learned Counsel appearing for the Revenaa contended that having regard to the phraseology used in sub-section (2-A) and sub-section (2-B) of section 37 of the Act and the wide amplitude of the words "expenditure in the nature of entertainment expenditure" the expenses m question are liable to be disallowed and in support of this contention reliance was placed by him on a decision of the Full Bench of the Kerala High Court in Commissioner of Income-tax, Kerala v. Veeriah Reddiar, (1977) 106 ITR 610 (Ker), which followed the decision of the Allahabad High Court in Brij Raman Dass and Sons v
