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Commissioner of Income-tax Vs. Shyam Lal Ramcharan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 190 of 1980
Judge
Reported in[1984]147ITR52(MP)
ActsIncome Tax Act, 1961 - Sections 37(2B)
AppellantCommissioner of Income-tax
RespondentShyam Lal Ramcharan
Excerpt:
- .....'entertainment ' in the context of section 37(2b) of the act on its true construction and meaning would include the acts or practice of receiving and entertaining the strangers and friends, but if the acts or practice of being hospitable in the sense of providing meals, drinks or other wants of guests are part and parcel of the express or implied terms and conditions of business, trade or profession or on account of long-standing custom in such trade, business or profession, they would not amount to acts of entertainment, we further held that hospitality shown on account of obligation of business arising as a result of an express or implied contract or arising oh account of the long-standing custom of a trade cannot amount to 'entertainment'. in view of this decision, the reference.....
Judgment:

Sohani, J.

1. By this reference under Section 256(1) of the Income-tax Act,1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to thiscourt for its opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by the assessee for providing meals and light refreshments to its trade customers in the normal course of business, did not amount to expenditure in the nature of entertainment as contemplated by Section 37(2B) of the Act and thereby upholding the deletion of the disallowances of Rs. 18,000 and Rs. 17,800 made by the ITO for the assessment years 1975-76 and 1976-77, respectively ?'

2. The material facts giving rise to this reference briefly are as follows ;

3. The assessee is a registered firm deriving income from adhat business. The assessment years in question are 1975-76 and 1976-77. In these years, the assessee claimed deduction of expenditure of Rs. 18,000 and Rs. 17,800 respectively as expenditure incurred for serving meals to its trade constituents. The claim of the assessee was disallowed by the ITO who held that the expenditure incurred was in the nature of entertainment, contemplated by the provisions of Section 37(2B) of the Act. On appeal, the Commissioner of Income-tax (Appeals) deleted the disallowances as made by the ITO. The Department, therefore, preferred appeals before the Tribunal, which dismissed the appeals. Hence, at the instance of the Department, the Tribunal has referred the aforesaid question of law to this court for its opinion.

4. The question as to whether the expenditure incured by an assesseefor providing messing to its trade constituents by way of ordinary courtesy, amounted to expenditure in the nature of entertainment expenditure as contemplated by Section 37(2B) of the Act, came up for consideration before us in [1982] 134 ITR 234 (CIT v. Lakshmichand Muchhal)). Agreeing with the view taken by the Gujarat High Court in : [1977]106ITR424(Guj) (CIT v. Patel Brothers & Co. Lid.) we have held that the term 'entertainment ' in the context of Section 37(2B) of the Act on its true construction and meaning would include the acts or practice of receiving and entertaining the strangers and friends, but if the acts or practice of being hospitable in the sense of providing meals, drinks or other wants of guests are part and parcel of the express or implied terms and conditions of business, trade or profession or on account of long-standing custom in such trade, business or profession, they would not amount to acts of entertainment, We further held that hospitality shown on account of obligation of business arising as a result of an express or implied contract or arising oh account of the long-standing custom of a trade cannot amount to 'entertainment'. In view of this decision, the reference has to be answered in the affirmative and in favour of the assessee.

5. In our opinion, therefore, our answer to the question referred to us is in the affirmative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs.


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