Delhi High Court
Commissioner Of Income Tax vs Grandlay Electricals (India) on 22 April, 1992
Equivalent citations: [1992]198ITR591(DELHI)
Author: B.N. Kirpal
Bench: B.N. Kirpal
JUDGMENT B.N. Kirpal, J.
1. In respect of the assessment year 1967-68, the Income-tax Appellate Tribunal has stated the case and referred the following question to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding the sum of Rs. 18,499 is not disallowable as entertainment expenditure ?"
2. It is unfortunate that the statement of the case as drawn up by the Tribunal lacks clarity, to say the least. Learned counsel for the Department has, however, taken us through the orders passes by the authorities under the Act. The facts, briefly stated, are that the assessed had made a claim for deduction of sale promotion expense. The Income-tax Officer came to the conclusion that, out of the total expenses claimed by it, a sum of Rs. 37,498 was in nature of entertainment expense. The Income-tax Officer applied the provisions of section 37 of the Income-tax Act, 1961, and allowed a deduction of Rs. 5,000 and disallowed deduction of the balance of Rs. 32,498. An appeal was filed to the Appellate Assistant commissioner who, inter alia, allowed deduction on the amount spent by the assessed for tea, cold-drink, etc., served to its customers. The sum so spent, came to Rs. 18,498. The Income-tax Officer filed a further appeal to the Income-tax Appellate Tribunal. It was held by the Tribunal that the expense of Rs. 18,498 had been correctly allowed. This is the expense which was incurred by the assessed in providing soft drinks, tea, coffee, etc., to its customers, and the Tribunal was of the view that this expense did not amount to entertainment expenditure. It is thereafter that the aforesaid question of law has been referred to this court.
3. The Tribunal decided the appeal, out of which this reference as arisen, vide its order dated January 3, 1981. By the Finance Act, 1983, Explanation 2 has been inserted in section 37(2A) with effect from April 1, 1976. The said Explanation reads as follows :
"For the removal of doubts, it is hereby declared that for the purpose of this sub-section and sub-section (2B), as it stood before the 1st April, 1977, 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessed to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessed to his employees in office, factory or other place of their work."
4. This Explanation was not available at the time when the Tribunal decided the appeal. As the Explanation has been inserted with retrospective effect, the same has to be given effect to in this case. The said Explanation has been considered by the Karnataka High Court in the case of CIT v. Mysore Minerals Ltd. [1986] 162 ITR 562, and at page 564, it was observed as follows :
"It will be clear from the above Explanation that expenditure on provision of hospitability of every kind by the assessed to any person, whether by way of provision of food or beverages or in any other manner whatsoever, would be 'entertainment expenditure'. But, it excludes the expenditure on food or beverages provided by the assessed to his employees in office, factory or other place of their work."
5. The facts found in the present case are that this expense of Rs. 18,498 was incurred in providing tea and cold drinks to the customers. By virtue of the Explanation, this expense will have to be regarded as entertainment expenditure because the assessed has provided beverages to persons who are not its employees. In view of the said Explanation 2 to section 37(2A), the question of law has to be answered in the negative and in favor of the Revenue.
6. There will be no order as to costs.