S. Ranganathan, J.
1. This is an income-tax reference relating to assessment year 1972-73. Supreme Motors (p) Ltd., the assessed-respondent, claimed, inter alia, a sum of Rs. 7,359 as a deduction in the computation of its business income. The above expenditure was claimed as sales promotion expenses. The ITO found that in the earlier year the assessed had claimed only Rs. 3,454. He observed that the expenditure and disallowed the same.
2. On appeal it was contended on behalf of the assessed that the amount of Rs. 7,359 had been spent on supplying tea and cool drinks to customers and employees at head office, branch office and at the workshop. The AAC observed that the amount spent on tea and cool drinks supplied to employees had not been indicated. Expenditure on provision of tea and cool drinks to customers, in his opinion, was in the nature of entertainment expenditure. Following a decision of the Allahabad High Court in Brij Raman Dass & Sons v. CIT : 104ITR541(All) , he upheld the disallowance made by the ITO.
3. When the matter came before the Appellate Tribunal, it referred to the decision of the Gujarat High Court in CIT v. Patel Brothers & Co. Ltd. : 106ITR424(Guj) , and deleted the addition. Thereupon, on the application of the Commissioner of Income-tax, the following question has been referred to us for decision :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the amount of Rs. 7,359 was not in the nature of entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961 ?'
4. On behalf of the applicant it is submitted that the expenditure incurred on the provision of tea and cool drinks to customers should be treated as entertainment expenditure. Strong reliance is placed on the decisions of the Allahabad High Court in Brij Raman Dass & Sons case : 104ITR541(All) , and of a Full Bench of the Punjab High Court in the case of CIT v. Khem Chand Bahadur Chand .
5. There has been a good deal of controversy of judicial opinion in regard to the exact meaning and scope of the expression 'entertainment expenditure' used in ss. 37(2), 37(2A) and 37(2B) of the I.T. Act, 1961, as they stood at the relevant time. One view is that 'entertainment expenditure' includes all expenditure incurred in connection with the business on the entertainment of customers and or constituents where it is in respect of provision of refreshments, cold or hot drinks, cigarettes, pan etc., to customers and constituents. On the other hand, the Gujarat High Court in the case of Patel Brothers & Co. Ltd. : 106ITR424(Guj) , took the view that extension of hospitality does not always amount to entertainment and that it is so only where the hospitality is lavish or on a grand extravagant or liberal scale. In this view, small courtesies like serving tea, coffee or refreshments cannot be raised to the dignity or status of 'entertainment'. The several cases that have been decided in regard to this issue have been collected at p. 96 of Kanga and Palkhivala on The Law and Practice of Income Tax (Supplement to 7th Edn), pp. 1440-1 of Vol. II of Chaturvedi and Pithisaria's Income Tax Law (3rd Edn) and pp. 1778-9 of Vol II of Sampath Iyengar on Law of Income Tax (7th Edn). To this list may be added three decisions of the M. P. High Court CIT v. Navalmal Punamchand : 135ITR801(MP) , CIT v. Rajkumar Mills Ltd. : 135ITR811(MP) and CIT v. Shyamlal Ramcharan (see p. 52 infra) and the recent Allahabad decision in Brijraman Das & Sons v. CIT : 142ITR509(All) .
6. In our view it is unnecessary to pronounce any final opinion on this controversial issue for the purpose of the present reference. A perusal of the decision clearly shows that to a considerable extent the question is one of degree and fact. In the present case, we have an assessed which is carrying on business of sale of TMB vehicles and their accessories and also running a workshop for the same. The sales of the assessed during the previous year in question amounted to Rs. 3.28 crores. The return filed by the assessed showed a net income of Rs. 10.271 lakhs. The sales promotion expenses claimed by the assessed amounted to Rs. 7,359 which is a very insignificant and paltry amount in the context of the magnitude of the assessed's business. We have mentioned earlier that before the AAC the assessed contended that this expenditure had been incurred on the supply of tea and cool drinks to customers as well as to the staff of the assessed at the various establishments run by it. There is no finding by the AAC that part of the amount was not incurred on the staff; he only observes that the exact extent to which the expenditure related to staff had not been indicated. It would, thereforee, appear that the assessed is claiming, in respect of the expenditure incurred on customers and constituents, a deduction only to the extent of a portion of the sum of Rs. 7,359, which had been disallowed. Considering the claim of the assessed against the background of its turnover and profits, we are of the opinion that such a small amount incurred by the assessed, even assuming that it is for the supply of tea and cool drinks to customers, cannot be described as expenditure in the nature of entertainment expenditure. Even in the decision of the Full Bench of the Punjab High Court which has been strongly relied upon by the Department, it has been pointed out that the matter would ultimately be one of degree and that the point should not be stretched to the extent of disallowing petty claims. It is for these reasons that we have come to the conclusion, without finally expressing an opinion as to the precise scope of the expression 'in the nature of entertainment expenditure' used in the statute, that so far as the present case is concerned, the conclusion of the Tribunal that the expenditure was not of that nature is fully borne out by the facts of the case and that there is no reason to differ from that conclusion.
7. We, thereforee, answer the question referred to us in the affirmative and in favor of the assessed. As there is no appearance on behalf of the assessed, there will be no order as to costs.