The expression "expenditure in the nature of entertainment expenditure" under Section 37(2A) and (2B) of the Income Tax Act, 1961 is wide enough to include expenditure incurred by an assessee for messing of its customers.

R.R. Misra, J.

M/s. Phool Chand Gajanand, a registered firm, carried on wholesale cloth business at Kanpur. During the assessment year 1974-75 it claimed a deduction of Rs. 7190/- in regarding to the messing expenses of its customers. The Income Tax Officer disallowed the claim u/s 37(2B) of the Income Tax Act 1961 (hereinafter referred to as the Act). On appeal, the Appellate Assistant Commissioner of Income Tax, however, accepted the plea of the Assessee and accordingly allowed the appeal. Aggrieved, the Income Tax Officer concerned filed a second appeal before the Income Tax Tribunal. The Tribunal took the view that with regard to the provisions of Section 37(2B) of the Act the expenses in question fell within the category of "in the nature of entertainment expenditure" and, therefore, deserves to be disallowed. In doing so, it also followed a decision of this Court in Brij Raman Dass and Sons Vs. Commissioner of Income Tax, (1976) 104 ITR 541. The result was that the order passed by the Appellate Assistant Commissioner was set aside and the order passed by the Income Tax Officer disallowing the claim of the Assessee was restored. Thereafter at the instance of the Assessee, the following question was referred for opinion of this Court u/s 256(1) of the Act:

Whether on the facts and in the circumstances of the case, the expenditure of Rs. 7,190/- could be disallowed u/s 37(2B) of the Act.

2. When the matter came up for hearing before a Division Bench of this Court it found that there is a divergence of judicial opinion on this question and the leading case which takes a contrary view was the case of Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., (1977) 106 ITR 424. It accordingly felt that while deciding Brij Raman Das's case (supra), this Conrt had interpreted the word "entertainment" in a literal sense but as the amount was spent in providing food to the customers it was nothing more than extension of common Courtesy to a visitor who comes across the Assessee in connection with his business. It also felt that the various High Courts which took the view and agreed with the view of this Court in the case of Brij Raman Das (supra) have to be tested in the light of the concept of entertainment generally held in the society to which the enactment relates. Therefore; the said Bench was of the opinion that the said decision of Brij Raman Das (supra) required reconsideration and accordingly the matter has been referred to us for our opinion.

3. We have heard learned Counsel for the parties.

4. Learned Counsel for the Assessee contended that the expenditure so incurred by the Assessee is not liable to be disallowed u/s 37 (2A) and (2B) of the Act as the expenditure was not on lavish or extravagant scale. In support of his submission learned Counsel has relied upon the decision 'in the case of Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., (1977) 106 ITR 424 followed by various other High Courts in the cases of Commissioner of Income Tax, Karnataka Vs. Corporation Bank Ltd., (1979) 117 ITR 271, Addl. Commissioner of Income Tax Vs. Maddi Venkataratnam and Co. Ltd., (1979) 119 ITR 514, Commissioner of Income Tax Vs. Karuppuswamy Nadar and Sons, (1979) 120 ITR 140, C.I.T. v. Ukshmichand Muchhal (1982) 134 ITR 234 and Devichand Bastimal and Bhanwarlal Manakchand Vs. Commissioner of Income Tax, (1985) 49 CTR 43.

5. Sri. Bharatji Agrawal, learned Senior Standing Counsel appearing for the Revenue, however, on the other hand, contended that having regard to the phraseology used in Sub-clauses (2A) and (2B) of Section 37 of the Act and the wide ambit of the words "any expenditure in the nature of entertainment expenditure", the expenses in question are liable to be disallowed as has been held by the Income Tax Tribunal irrespective of the fact whether the expenditure were incurred on lavish or extravagant scale or not. In support of this contention, learned Standing Counsel has placed rel