Hospitality shown on account of business compulsion does not amount to entertainment expenses, but voluntary expenses on entertainment are not allowable.

J.V.Gupta, J.

1. The assessee-firm is a dealer of M/s. Ashok Leyland Ltd. for Jammu and Kashmir. In September, 1969, the assessee received a letter from Shri M. D. Kapoor, sales director of M/s. Ashok Leyland, Madras, to the effect that it had been decided to hold the " Main Dealers Conference 1969 " at Srinagar some time in October 1969. It was further stated by Shri M. D. Kapoor that he would require 8/10 cars for the delegates and that he would appreciate if the assessee could make arrangements for the same. It was further suggested by Shri Kapoor that the assessee should host a dinner for the delegates on 14th October, 1969, and that M/s. Ashok Leyland would compensate the assessee in some other way for the expenditure incurred by it. In pursuance of this letter, the assessee spent a sum of Rs. 13,135 on the Ashok Leyland Dealers Conference in respect of taxi bills and dinner, etc. In addition to this expenditure, the assessee also spent the sum of Rs. 4,543 on providing tea, etc., to its customers and members of the staff. Holding that the expenditure of Rs. 17,678 was in the nature of entertainments, the ITO disallowed the same while passing order for the assessment year 1971-72. On appeal, the AAC held that the expenditure of Rs. 13,135 was allowable, as the same had been incurred for business purposes. As regards the expenditure of Rs. 4,543, he allowed the same to the extent of Rs. 1,543, on the ground that the same related to the provision of tea and food, etc., to the employees. Thus, the total amount allowed by him was Rs. 14,678. In second appeal by the department, the Tribunal held as under :

" We have gone through the record and heard the learned representatives of the parties. In our opinion, the decision of the Appellate Assistant Commissioner is sound and the same calls for no interference. The facts of the case indicate that the assessee did not voluntarily spend the amount of Rs. 13,135 on the Ashok Leyland Dealers Conference. Since no dealer could afford to offend the manufacturers, the assessee had no choice, but to arrange for the cars and the dinner, etc., for the delegates, as desired by Shri M. D. Kapoor, sales director of M/s. Ashok Leyland, Madras. It is also on record that the manufacturers, who were pleased with the assessee, provided certain number of chassis to it on old rates even though there had been some increase in the prices. In our opinion, the expenses incurred by the assessee were not in the nature of entertainment expenses and that the same were necessary on the ground of commercial expediency and business considerations. We, accordingly, agree with the view taken by the Appellate Assistant Commissioner that the expenses amounting to Rs. 13,135 were incurred by the assessee wholly and exclusively for the purpose of its business. The same are, therefore, allowable. "

2. At the instance of the revenue, the Tribunal has referred the following question for the opinion of this court :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenses of Rs. 13,135 were allowable under Section 37 of the Income-tax Act, 1961 ? "

3. It has been argued on behalf of the revenue that in view of Section 37(2A) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), the sum of Rs. 13,135 incurred as business expenses by the assessee on the conference were not allowable as such under Section 37(1) as they fall within the purview of expenditure in the nature of entertainment. Section 37(2A) reads as under :

" Notwithstanding anything contained in Sub-section (1) or subsection (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder :-

-..."

4 According to the learned counsel, the word " entertainment " sho