Gopal Sri Ram JCA:

[1] The appellant is a private limited company. It blends and sells lubricants for motorised vehicles. It also sells some equipment and other products. During the years of revenue assessment 1989, 1990, 1991 and 1992 the appellant gave away certain promotional items to its customers and dealers. There were two categories of promotional items. First, those given to dealers ("the dealers' items") who marketed the appellant's products to members of the public. These did not carry the appellant's logo on them. They were such items as electrical appliances and beverages. Nothing turns on the dealers' items as the appellant taxpayer does not challenge the decision by Revenue in respect of these. Second, those given away to customers ("the customers' items") who purchased the appellant's products. These included such items as mugs, "T" shirts and umbrellas which carried the appellant's logo. So, if you went along to a petrol kiosk and bought one of the appellant's products, say, a can of "Castrol" engine oil, for your motor car, you would receive one of the customers' items. The appellant deducted the expenses incurred on all these promotional items from its gross income for each year of assessment because - and this is the nub of the appellant's case - it took the view that these were expenses wholly and exclusively incurred in the production of its gross income. Revenue, after initially allowing these deductions, declined to permit them because - and this is the nub of Revenue's case - they were entertainment expenses and hence liable to be taxed without the benefit of any deduction. Both the Commissioners and the High Court found for Revenue. The appellant has now appealed to us.

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Subject to this Act, the adjusted income of a person from a source for the basis period for a year of assessment shall be an amount ascertained by deducting from the gross income of that person from that source for that period all outgoings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source .....

I have lent emphasis to that part of the subsection on which the appellant relies.

[3] In support of its case to justify the taxability of the expenses in question, Revenue relies on s. 39(1)() of the Act which was introduced by the Finance Act 1995 by way of amendment with effect from the year of assessment 1995. That provision reads:

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39(1) Subject to any express provision of this Act, in ascertaining the adjusted income of any person from any source for the basis period for a year of assessment no deduction from the gross income from that source for that period shall be allowed in respect of:

(a)-(k)

(l) any expenses incurred in the provision of entertainment including any sums paid to an employee of that person for the purpose of defraying expenses incurred by that employee in the provision of entertainment.

[4] The issue before the Commissioners and the Court below was this. Were the monies incurred by the appellant taxpayer in providing the customers items - to quote the words of the Act - expenses wholly and exclusively incurred during that period by that person in the production of gross income? Or were they "expenses incurred in the provision of entertainment" as contended by Revenue. If the former, then the appellant would be entitled to deduct them: if the latter it would not. Upon this rather simple question we were regaled with authorities which, in my view, did not assist in the resolution of the question.