Calcutta High Court
Commissioner Of Income-Tax vs Eskaps (I) Pvt. Ltd. on 15 May, 1989
Equivalent citations: [1991]191ITR674(CAL)
JUDGMENT Ajtt K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, relating to the assessment year 1976-77, the following question of law has been referred to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that expenditure of Rs. 9,487 not being an entertainment expenditure within the meaning of Section 37(2B) of the Income-tax Act, 1961, was an admissible deduction under Section 37(1) of the said Act is computing the assessee's total income for the assessment year 1976-77 ?"
2. Shortly stated, the facts are that the assessee is a company carrying on the business as Cargo Surveyors and Analytical Chemists and received fees from pre-shipment inspection and testing of quality of jute and jute goods on behalf of the buyers from different European countries and also of local buyers. In addition, during the year ended on December 31, 1975, relevant to the instant assessment year 1976-77, the assessee received agency commission of Rs. 50,770 from Coal Inspecting Service, Dhanbad, and Indo Cargo Surveyors, Cochin, for carrying out inspecting and testing work at Dhanbad and Cochin as company's agents. Net profit for the instant year was Rs. 9,68,413 whereas the total income was worked out at Rs. 10,38,000. In the assessment, a sum of Rs. 24,329 was disallowed under Section 37(2B) of the Income-tax Act, 1961, as entertainment expenditure, That apart, the Income-tax Officer disallowed business promotion expenses of. Rs. 9,487 which were on account of a dinner party at Grand Hotel, Calcutta, for inviting the buyer's representatives who came from different European countries to discuss matters relating to quality control of jute goods. Experts from different jute mills were also invited. The Income-tax Officer treated the expenditure also as entertainment expenditure falling under Section 37(2B) of the Income-tax Act. On appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance.
3. Being aggrieved, the matter was taken in second appeal to the Appellate Tribunal which decided the issue against the Revenue holding that the expenditure, in dispute was not in the nature of entertainment expenditure which should be allowed under Section 37(1) of the Act.
4. We have considered the rival contentions. On the facts of the case, in our judgment, the Tribunal came to a correct conclusion. The assessee-company had been acting on behalf of foreign buyers of jute and jute goods. Their representatives visited this country for the purpose of business. Experts from jute mills were also invited. The subject-matter of discussion was quality control of jute goods. They met at a dinner party for discussing certain vital issues which were directly concerned with the assessee's business activities. A dinner party no doubt introduces an element of hospitality. But hospitality in every case would not amount to entertainment in the sense it is understood. Where hospitality is undertaken solely with the object of promoting the business, the expenditure is not disqualified because the nature 6f the activity necessarily involves some other result, e.g., entertainment or hospitality. The dinner party in the instant case was for promotion of business and not for social hospitality. Even if indirectly a private or social hospitality is involved in such dinner party, so long as such expenditure is exclusively for the purpose of business, it cannot be disallowed on any consideration of hospitality, private or social.
5. In our judgment, the expenditure in question is not in the nature of entertainment expenditure within the meaning of Section 37(2B) of the Income-tax Act, 1961.
6. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee and against the Revenue.
7. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
8. I agree.