Gujarat High Court
Commissioner Of Income-Tax vs Mehsana Dist. Co-Op. Milk Producers ... on 21 June, 1993
Equivalent citations: [1994]207ITR126(GUJ)
JUDGMENT G.T. Nanavati, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal made a joint reference for the assessment years 1969-70, 1971-72 and 1972-73. Three applications were made to the Income-tax Appellate Tribunal as the questions which the assessee wanted to be referred to this court arose out of three orders passed in three separate appeals by the Tribunal. The Tribunal, therefore, ought to have made three separate references. Since the Tribunal has failed to do so, we direct the office to register the common reference as three references treating Income-tax Reference No. 510 of 1980 as reference pertaining to the assessment year 1969-70 and the other two references, i.e., Income-tax References Nos. 510-A and 510-B as income-tax references for the assessment years 1971-72 and 1972-73, respectively.
2. The identical questions which the Tribunal has referred to this court are as under :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the expenditure incurred in connection with the annual day celebrations in allowable as a business expenditure ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in allowing Rs. 3,661 and Rs. 9,540 for the assessment year 1971-72 and Rs. 31,946 for the assessment year 1972-73 as business expenditure ?"
3. Question No. 1 pertains to all the three assessment years. Question No. 2 arises for the assessment years 1971-72 and 1972-73.
4. So far as question No. 1 is concerned, it stands covered, though not directly, by a decision of the Full Bench of this court in Karjan Co-operative Cotton Sales Ginning and Pressing Society v. CIT [1993] 199 ITR 17. In that case, it is held that the true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. In that case, the assessee-society had decided to give two stainless steel cups (tumblers) to its members. It is held by this court that the expenditure could not be treated as dividend or as "rebate". The expenditure in question was incurred by the assessee-society for preservation of its business and to see to it that its members continue to deal with the society in future in the same way they had done in the past 25 years. The silver jubilee afforded an occasion for the society to incur this expenditure for keeping the members in good humour solely with the object of preserving and bettering its business prospects in future. On that basis, the said expenditure was held deductible as business expenditure.
5. In CIT v. Kaira District Co-operative Milk Producers' Union Ltd. [1991] 192 ITR 608 also, this court has taken the view that, if the expenditure is incurred out of commercial expediency to meet customary hospitality such as for providing lunch or dinner to visitors, employees and technicians who visited the factory, then the same would be deductible expenditure covered by section 30(a)(ii) of the Act and would not amount to expenditure in the nature of entertainment for which a provision is made in section 37(4) of the Act. Following the said two decisions, question No. 1 will have to be answered in the affirmative, i.e., against the Revenue and in favour of the assessee.
6. So far as question No. 2 is concerned, it is found as a matter of fact by the Tribunal that the amounts of Rs. 3,661 and Rs. 9,540 for the assessment year 1971-72, though described as guest entertainment expenses, were in actuality expenses incurred for the purpose of serving tea, snacks and food to the primary members of the assessee-society and its customers and visitor having work with the assessee. They did not represent the expenditure incurred for the purpose of maintenance of guest house. In expenditure incurred for the purpose of maintenance of guest house. In view of this clear finding of fact which is now not in dispute, it cannot be said that the Tribunal was wrong in treating them as deductible business expenditure.
7. As regards the expenditure of Rs. 31,946, the Tribunal has found on facts that the said expenditure is of the same type as those of the amount of Rs. 3,661 and Rs. 9,540, and a specific finding has been recorded with respect to that item also that it did not relate to maintenance of guest house. Therefore, as the said expenditure was incurred for the purpose of providing tea, snacks and food to its members and customers or visitors having business with the assessee, it was rightly held as deductible business expenditure and not as entertainment expenditure. Therefore, question No. 2 is also answered in the affirmative, i.e., against the Revenue and in favour of the assessee.
8. In the result, both the questions are answered in the affirmative, that is, against the Revenue and in favour of the assessee. No order as to costs.