1. The question that has been referred to us for determination in this reference made by the Tribunal under s. 66(2) of the Indian I. T. Act, 1922, runs thus :
'Whether, on the facts and in the circumstances of the case, the expenses of Rs. 5,902 and Rs. 6,996 incurred by the assessee-company on the occasion of Satyanarayan Mahapooja for the assessment years 1957-58 and 1958-59 are allowable deductions under section 10(2) (xv) of the Indian Income-tax Act, 192 ?'
2. The facts pertaining to this question lie in a very narrow compass. The question relates to the assessment years 1957-58 and 1958-59. The assessee is a limited company carrying on business of manufacture and sale of sugar. In the respective accounting years relevant to the assessment years 1957-58 and 1958-59, it incurred an expenditure of Rs. 5,902 and Rs. 6,996 on Satyanarayan Mahapooja and claimed those expenses as allowable deduction under s. 10(2) (xv) of the Act in the computation of its income for the respective assessment years. The ITO as well as the AAC rejected the claim on the ground that the expenses could not be regarded as expenditure having been incurred wholly or exclusively for the business of the company under s. 10(2) (xv) and that the same was not dictated by any business consideration. When the matter was carried in second appeal to the Tribunal it was sought to be explained on behalf of the assessee that the amounts in question were expended over food and entertainment of labourers working in the assessee's own sugar factory and farm and also other labourers who were working under outside canegrowers and those expenses were incurred on the last day of the working season on which day Satyanarayan Mahapooja was celebrated. It was submitted that those labourers were fed on the occasion to see that they were happy and also to induce them to continue to work in the assessee-company in the next season and as such the expenses were in the nature of welfare expenses of the labourers. The Tribunal found that the assessee had separately claimed labour welfare expenses and the expenses in question were not included in that account in the balance-sheet evidently because the assessee did not consider them as labour welfare expenses. The Tribunal agreed with the AAC that the expenses in question were neither necessary nor incurred by the assessee-company in the carrying out of the assessee's business and ultimately upheld the disallowance. At the instance of the assessee, the question set out at the commencement has been referred to us for our determination.
3. Mr. Munim appearing for the assessee-company contended before us that after all the purpose of Satyanarayan Mahapooja was merely an occasion but the major expenses were on account of annual dinners that were given to the cane-growers and labourers connected with the working of the mill and such expenses would fall within the category of entertainment expenses incurred by the assessee-company for keeping the labour in good humour so as to induce them to work in the assessee-company in the following seasons and as such the expenses should be regarded as motivated by commercial or business consideration and that, therefore, they would be allowable as a deduction under s. 10(2) (xv) of Act. Reliance was placed by Mr. Munim upon a decision of the Gujarat High Court in the case of CIT v. S. L. M. Maneklal Industries Ltd. : 107ITR133(Guj) .
4. It is impossible to accept the contention urged by Mr. Munim for the simple reason that the expenses cannot be regarded as expenses having been incurred wholly or exclusively for business purposes of the assessee-company. In the first place, there was no material placed before the taxing authorities or before the Tribunal to indicate what were the amounts actually spent on Satyanarayan Mahapooja and what was the proportion of the expenses incurred for feeding the labourers, both of the company as well as outside labourers working under the cane-growers. But that apart, the ITO as a matter of fact found that the cane-growers and the labourers connected with the working of the mill had been paid their proper wages as well as bonus, which expenditure, in our view, would be quite sufficient to keep the labourers in good humour so as to induce them to work for the company in the ensuing seasons. Therefore, the expenses in question which were incurred for the purpose of giving annual dinners by way of entertainment and feeding labourers, both of the assessee-company as well as outside labourers, cannot be said to be dictated by consideration of commercial or business expediency. It is also difficult to accept the further submission of Mr. Munim that these expenses should be regarded as welfare expenses for labourers. As has been pointed out by the Tribunal, the assessee-company had separately claimed labour welfare expenses and particularly these expenses had not been included in the balance-sheet under that head. Obviously, the assessee did not consider them as labour welfare expenses. On the facts, therefore, it is difficult to accept Mr. Munim's contention that these two items of expenses could be said to be expenditure expended wholly or exclusively for the purpose of business of the assessee-company or was dictated by considerations of commercial or business expediency.
5. Reliance on the Gujarat High Court decision in S. L. M. Maneklal Industries' case : 107ITR133(Guj) seems to us clearly to be misplaced. The facts in that case were entirely different from the facts which are obtaining in the instant case. In that case the assessee-company had entered into three agreements with their foreign collaborators and it had spent an amount of Rs. 2,125 in the relevant year for presentation of articles to the sales manager and other officials of the foreign collaborators and this amount was claimed as a deduction and though the Tribunal had disallowed this expenditure on the ground that it did not satisfy the test laid down under s. 37 of the Act, the Gujarat High Court took the view that since the expenditure of Rs. 2,125 was incurred by the assessee-company for the purpose of establishing good image for itself and for keeping the relations with the foreign collaborators working smoothly, it should be held that the amount was spent by the assessee-company for the purpose of business. The court further took the view that for falling under s. 37 of the Act the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee and that these presentations of articles could never be described as capital expenditure nor were they personal expenditure of the assessee-company. It will thus appear clear that it was a case where the expenditure had been incurred for presentation of articles to the sales manager and other officials of the foreign collaborators and it was that expense which was regarded by the Gujarat High Court as having been incurred for the purpose of establishing a good image for itself and for keeping smooth relations with the foreign collaborators, obviously an expenditure dictated by consideration of commercial expediency. In the instant case before us the expenditure had been incurred for giving annual dinners by way of feeding and entertaining the assessee-company's own labourers as well as labourers of cane-growers who were connected with the working of the mills. But as we have pointed out above, the assessee-company had admittedly paid properly all the wages due to such labourers as well as bonus due to them for the relevant years in question and the expenditure in question was incurred in addition to such payment of proper wages and bonus to the labourers. It is extremely doubtful whether the labourers would not have attended to the work of the assessee-company in the following seasons if such annual dinners had not been given to them, especially when the labourers had been paid their due wages and bonus in the relevant years.
6. In the result, the question is answered in the negative and against the assessee. The assessee will pay the costs of the reference to the department.