B.K. Mehta, J.
1. Since the question referred to us in both these references are identical, we intend to dispose of both these references by this common judgment.
2. In Income-tax Reference No. 151 of 1974, the relevant assessment years are 1969-70 to 1971-72, the corresponding previous years being the years ending on September 30, 1968, September 30, 1969, and September 30, 1970, respectively. The assessee-company is a limited company. The assessee-company provides meals to its workers as well as to the workers of its associates firm carrying on business under the name and style of Patel Brothers Oil Mills. It is an admitted position that the farmers come to deliver goods such as cotton, groundnut, rice and pulses to the assessee-company and it is claimed by the assessee-company that as a course of its business it is customary and out of commercial expediency it was necessary for it to provide meals to its farmer customers. The assessee-company on that count, therefore, claimed kitchen expenses of Rs. 22,301, Rs. 25,979, and Rs. 28,620, respectively, for the aforesaid assessment years. The Income-tax Officer disallowed the expenditure to the extent of Rs. 10,101, Rs. 12,979 and Rs. 17,305, corresponding to the expenses incurred on account of providing meals to the farmer customers for the aforesaid respective assessment years, as, in the opinion of the Income-tax Officer, in the absence of any specific provision in the matter of entertainment expenses, he found it difficult to give any concessional treatment to the assessee-company in so far as it entertained by providing meals though it was most ordinary in nature and in way could it be said to be lavish. The assessee-company, being aggrieved by this order of partial disallowance of the Income-tax Officer, went in appeal before the Appellate Assistant Commissioner, who held that the expenditure incurred by the assessee-company was not entertainment expenditure covered by section 37(2) of the Act for the simple reason that the expenditure incurred was for providing meals which were the bare necessity having regard to the nature of the business and were not such as to provide entertainment or amusement. He, therefore, directed the Income-tax Officer to delete the aforesaid amounts from the respective assessments of profits and gains of the assessee-company. The Income-tax Officer, therefore, carried the matter in appeal to the Tribunal. The Tribunal, however, following its earlier decision in Income-tax Appeals Nos. 1366 to 1367 of 1972-73 in the matter of Income-tax Officer v. Gautamkumar Rajendrakumar, out of which Income-tax Reference No. 64 of 1974 arises, confirmed the order of the Appellate Assistant Commissioner. The Commissioner of Income-tax has sought this Reference No. 151 of 1974 and the Tribunal has referred to us the following two questions :
'(1) Whether, on the facts and in the circumstances of the case, the expenditure in question was in the nature of entertainment expenditure in law
(2) Whether, on the facts and in the circumstances of the case, the expenditure in question would be allowable only to the limited extent of Rs. 5,000 under section 37(2A) of the Income-tax Act, 1961, for each of the assessment years under reference ?'
3. Similarly, in Income-tax Reference No. 64 of 1974, identical question have been referred to us in the following facts and circumstances. The relevant assessment years are 1970-71 and 1971-72. The assessee is a partnership firm carrying on business as commission agent in cloth at Ahmedabad. The assessee-firm claimed deduction of a sum of Rs. 17,471 for the assessment year 1970-71 and Rs. 13,277 for the assessment year 1971-72, being the expenditure incurred by way of kitchen expenses for providing meals to its up-country constituents who visit Ahmedabad for business purposes. The Income-tax Officer found that the said expenditure was in the nature of entertainment expenditure and, therefore, in view of the provisions of section 37(2A) of the Income-tax Act, disallowed the expenditure in excess of Rs. 5,000 for the assessment year 1970-71. As regards assessments year 1971-72, the Income-tax Officer allowed Rs. 4,426 being the expenditure incurred prior to February 28, 1970, within the limit of Rs. 5,000 allowable under section 37(2A) and disallowed the whole of the expenditure of Rs. 8,851 incurred after February 28, 1970, in accordance with the provisions of section 37(2B) of the said Act. Being aggrieved by the aforesaid orders of the Income-tax Officer, the assessee-firm preferred two appeals before the Appellate Assistant Commissioner against the disallowances of Rs. 12,471 for the assessment years 1970-71 and Rs. 8,851 for the assessment year 1971-72. The Appellate Assistant Commissioner accepted the assessee's contention that these were not expenses in the nature of entertainment expenses since they were for the purpose of the business. In this view of the matter, he allowed the expenses except to the extent to which they related to the personal use of the partners which he restricted to Rs. 3,000 in each of the assessment years. The Income-tax Officers, therefore, carried the matter in appeal before the Tribunal. The Tribunal by its consolidated order of May 28, 1973, held that the assessee-firm was supplying meals to its constituents purely for reasons of business expediency and there was no element of entertainment in supplying meals to its constituents. The Tribunal noted that it was not disputed that up-country constituents of the assessee-firm came to Ahmedabad for the purpose of business with the assessee-firm and having regard to the nature and magnitude of the business of the assessee-firm it would be necessary for the assessee to provide meals to its up-country constituents. Such expenses, according to the Tribunal, would be made purely out of business considerations and it failed to find any element of entertainment in supplying meals to such constituents. The Tribunal also noted that it was not the department's case that the assessee was lavish parties or arranging banquets for its constituents and the expenditure claimed was incurred for such parties of banquets. In that view of the matter, the Tribunal confirmed the order of the Appellate Assistant commissioner and dismissed the appeal. The following questions have been referred to us at the instances of the Commissioner.
'(1) Whether, on the facts and in the circumstances of the case, the expenditure in question was in the nature of entertainment expenditure in law
(2) Whether, on the facts and in the circumstance of the case, the expenditure in question could be allowable only to the limited extent of Rs. 5,000 under section 37(2A) of the Income-tax Act, 1961, for the assessment year 1970-71 ?'
4. At the time of hearing of these two references it was strenuously urged on behalf of the revenue that the entire approaches of the Tribunal was wrong, inasmuch as it lost sight of the legislative history of the provisions which clearly indicated that the legislative intended to curb gradually the expenditure of providing hospitality of any kind at the cost of public exchequer. According to the revenue, the Tribunal took a very narrow view in restricting the width and import of the term 'entertainment' in section 37(2) to those activities which are more or less lavish in scale or wasteful in nature. It was strenuously urged on behalf of the revenue that the term 'entertainment' should be liberally construed so as to include hospitality of away kind so as to effectuate fully the legislative intent expressed by the relevant provisions.
5. On behalf of the assessee these contentions were sought to be repelled by urging that unless something is done with a view to offering pleasure or to relieve monotony or boredom, it cannot successfully be said having regard to the shades of meaning and nuance of the term 'entertainment' that the assessees provide entertainment merely because they are obliged to provide meals or for that matter some bare hospitality out of commercial expediency and as a customary mode of doing a particular business. In the submission of the learned Advocate-General appearing for the assessees, the question, whether in a given case the expenses are in the nature of entertainment expenses or not, would depend on the facts and circumstances of each case and no hard and fast strait-jacket formula or test can be laid down so as to answer all the contingencies. In the submission of the learned Advocate-General, it would depend inter alia, on the nature and type of business, item of entertainment, place of entertainment and tradition and habits of the people of the area where an assessee is carrying on its business.
6. In the context of the above rival contentions, we have been called upon to answer the questioned referred to us. The relevant provisions relating to entertainment expenditure are contained in sub-sections (2A) and (2B) of section 37 of the Income-tax Act, 1961. The history of the provisions, shortly stated, is that the first step in the direction of controlling these expenses was taken in 1961 and a ceiling was placed on the expenditure that could be allowed under this head in the business of the companies by inserting a proviso to clause (xv) of section 10 of the 1922 Act. It provided in effect that no expenditure in the nature of entertainment expenditure shall be allowed in the case of an assessee other than a company and in the case of companies the maximum was prescribed on a slab basis depending on the profits and gains of the business. This amendments was sought to be inserted in the Act by the Finance Bill, 1961. It became an Act with effect from 1st April, 1962. The second step was taken in 1967 when a similar limitation was introduced in the cases of all assessees. This was achieved by introduction of sub-section (2A) by the Taxation Laws (Amendment) Act, 1967, with effect from 1st October, 1967. By Finance Act, 1968, an Explanation was added to sub-section (2A) with effect from April 1, 1968, so as to extend the scope of the restrictions with a view to cover and include the expenses incurred by an assessee granting entertainment allowance to its employees or other persons and also the expenditure incurred by an employee or other persons for purposes of assessee's business otherwise than out of an allowance paid by the assessee. The final step in this matter was taken by the Finance Act, 1970, which inserted sub-section (2B). It prohibited deduction of any expenditure in the nature of entertainment expenditure within India by any assessee after 28th February, 1970. In the memorandum explaining the provisions in the Finance Bill, 1970, by which sub-section (2B) was sought to be inserted in section 37, it has been noted in paragraph 27 of the memorandum that with a view to curb lavish expenditure on entertainment it is proposed to make a provisions for the disallowance of the expenditure incurred in India after 28th February, 1970, altogether in computing profits and gains of the business or profession.
7. It is, therefore, against this background of the history of the relevant provisions that the revenue urged that the Tribunal has gone wrong. According to the revenue, the Tribunal has lost sight of the legislative history of these provisions. We think that the criticism of the revenue is not unjustified. The Tribunal has taken a very narrow view of the matter. It has proceeded on the short ground that if the expenses incurred are not on a lavish or extravagant scale, inasmuch as the present assessees did not hold out any banquets or give dinners on a lavish or grand scale, it could not be said, having regard to the commercial necessity of providing bare meals to the customers - their upcountry constituents, or for that matter farmer customers - that they were 'entertaining' and consequently the kitchen expenses incurred for providing square meals would not be in the nature of entertainment expenses. The real problem to which we have to address ourselves is : what is the import and width of the word 'entertainment' The term 'entertainment' or entertainment expenses' has not been defined in the Act. There is no settled case law on the point which may give guidance in the matter. Unaided as we are, we have, therefore, to make an attempt to find out the true meaning of the term 'entertainment' in the context of the Income-tax Act. The term 'entertainment', is of a very wide import and if it is to be accepted so as to mean and include hospitality of any and every kind, we think, we would land the assessees as well as the tax collectors in an absurd and most unfair position where even offering a cup of cold water or a cup of tea or aerated water or drink would be entertainment, leave aside the question of providing meals or holding banquets or throwing grand parties or providing amusement of any kind. We do not think that the legislature intended to achieve that result, because it would not only entail the hardship and inconvenience beyond comprehension, but would result in furnishing by the assessee and collecting by the tax administrations the infinite and minute details of such expenses. The memorandum appended to the Finance Bill of 1970 by which sub-section (2B) is inserted is a pointer in the direction that the legislature intended to curb lavish expenditure on entertainment. The legislative history of this provision is significant, inasmuch as it gives us an idea that the legislature has gradually rusticated the admissibility and deductions of such expenses and has now, with effect from 28th February, 1970, completely disallowed such expenses while computing profits of business. We have, therefore, to find out what is the real import of this term 'entertainment' and what type of expenses would be classed as entertainment expenses. It cannot, therefore, successfully be urged, as has been sought to be done by the revenue, that every kind of hospitality should be treated as entertainment; and expenses, however small they may be, without regard to the magnitude and volume of business, and without consideration of the nature or type of business or the particular and specific items of entertainment and in complete disregard of the place of entertainment, traditions and habits of people of the area, should be disallowed and entertainment expenses. On the other hand, we are not inclined to agree with the broad contention urged on behalf of the assessees by the learned Advocate-General that we should restrict the width and import of the word 'entertainment' by linking it with such occupations which offer pleasure or relieve monotony or boredom, and if the assessees are obliged to do something out of commercial necessity and not with an object to be hospitable or friendly with the customers, they are not entertaining.
8. Our attention has been invited to the different meanings of the term 'entertainment' as given in Corpus Juris Secundum or in Stroud's Judicial Dictionary or in various other dictionaries. On behalf of the revenue, great emphasis was laid on the meaning assigned to the word 'entertainment' in Corpus Juris Secundum as well as in Stroud's Judicial Dictionary. In Corpus Juris Secundum, volume 30, at page 716-717, the meaning of the term 'entertainment' has been given. It is no doubt true that this term 'entertainment' has two essentially different meanings as indicated in two sub-divisions. In one sense it is 'furnishing of accommodation', and a another sense, it is 'amusement or diversion'. The learned advocate for the revenue, so far as these references are concerned, urged that in the first sense of furnishing accommodation, the word 'entertainment' has been defined as, inter alia, making hospitable provision for a table - a feast; a formal or elegant meal, etc., and providing hospitable reception. Our attention has also been invited to the meaning of the term 'entertainment' given in Stroud's Judicial Dictionary, 4th edition, volume 2. The following observation has been relied upon which appears at page 916 under the term 'entertainment' :
'By Refreshment Houses Act, 1860 (c. 27), section 6, a REFRESHMENT-HOUSE requiring a licence was a building 'kept open for public refreshment, resort, and entertainment'. 'Entertainment', as there used, meant, 'not diversion or amusement, but the provision of food, drink, and whatever else might be reasonably required for the personal comfort of guests' (Taylor v. Oram  31 LJMC 252); e.g., cigars, coffee, ginger-beer, or lemonade, the provision of which did not cease to be 'entertainment' because no seats are provided for their more comfortable consumption.'
9. We do not think that it would be appropriate for us to accept this meaning of the term 'entertainment' as given in Corpus Juris Secundum or Stroud's Judicial Dictionary since one or the other meaning indicated there is, according to the judicial discussion or interpretation, made in the context of a particular Act under which the questions arose from time to time before the courts. We have, therefore, to consider what is broadly the dictionary meaning of this term. In Webster's New Twentieth Century Dictionary, at page 607, we get the following meaning of the word 'entertainment' :
'1. an entertaining or being entertained; specifically, (a) amusement; (b) hospitality given or received; (c) the consideration of an idea, etc.; (d) a keeping in mind.
2. something that entertains; an interesting, diverting or amusing thing, as a show or performance.
3. reception; admission (Rare).
4. the state of being in pay or service (Obs).
Syn - amusement, diversion, recreation, pastime.'
10. The meaning of hospitality is to be found in the same dictionary at page 879, which reads :
'... the act, practice, or quality or receiving and entertaining strangers or guests in a friendly and generous way.'
11. In New Webster Encyclopaedic Dictionary of the English Language, at page 291, we find the meaning of the word 'entertainment' to include the act of entertaining; receiving and accommodating of guests; food, lodging, or other things required by a guest; a hospitable repast; the pleasure which the mind receives from anything interesting, and which holds or arrests the attention; that which entertains; that which serves for amusement as a dramatic or other performance; reception; admission. In the same dictionary, we find the meaning of the term 'hospitable' at page 410 as under :
'Receiving and entertaining strangers with kindness and without reward; kind to strangers and guests; pertaining to the liberal entertainment of guests.'
12. The term 'hospitality' has the following meaning as we find at page 410 in the same dictionary :
'The kind and generous reception of strangers or guests; hospitable treatment or disposition.'
13. In the Random House Dictionary of the English Language, college edition, at page 441, we find the meaning of the term 'entertainment' as under :
'1. to hold the attention of persons agreeably; divert; amuse. 2. to treat as guest; show hospitality to. 3. to admit into or hold in the mind; consider. 4. Archaic. to maintain or keep up. 5. Obs. to give admittance or reception to; receive. - v.i. 6. to exercise hospitality; entertain company.'
14. In the same dictionary, at page 640, we find the meaning of the term 'hospitality' as under :
'1. the friendly reception and treatment of guests or strangers.
2. the quality or disposition of receiving and treating guests and strangers in a warm, friendly, generous way.'
In Oxford English Dictionary, volume 3, find the following meaning of the word 'entertainment' :
'(a) The action of occupying a person's attention agreeably; interesting employment, amusement.
(b) that which affords interest or amusement.
(c) a public performance or exhibition intended to interest or amuse.
(d) the action of receiving a guest, also the action the action of treating as guest, if providing for the wants of a guest.
(e) hospitable provisions for the wants of a guest : especially provision for the table.
(f) a meal, esp., a formal or elegant meal; a banquet somewhat rare in recent use.'
15. In the compact edition of the Oxford English Dictionary, volume 1, at page 1336, we find the following meaning of the word 'hospitality' :
'1. The act or practice of being hospitable; the reception and entertainment of guests, visitors or strangers with liberality and goodwill.
2. Hospitableness - Obs.
3. A hospitable institution or foundation; a hospital (sense 2).'
16. We find the following meaning of the term 'entertainment' in the same dictionary at page 876 :
'1. The action of upholding or maintaining. - Obs.
2. The action of maintaining persons in one's service, or of taking persons into service. Also the state or fact of being maintained in or taken into service, service, employment. - Obs.
3. Maintenance; support; sustenance. - Obs.
4. Manner of social behaviour. - Obs.
5. Treatment (of persons). - Obs.
6. Discussion of a subject. - Obs.
7. Occupation; spending (of time). Now rare.
8. The action of occupying (a person's) attention agreeably; interesting employment; amusement.
9. The accommodation of anything in a receptacle. - Obs.
10. Reception (of person); manner of reception.
11. The action of receiving a guest. Also the action of treating as a guest, of providing for the wants of a guest.
12. The action of accepting (a present or proposal); the receiving in a certain manner (news, events, etc.); the 'reception' (esp. favourable reception, welcome), e.g., of a newly published book, of a new idea or doctrine, etc. - Obs.'
17. It is, therefore, clear to us that the dictionary meaning of the term 'entertainment' is to receive and treat with hospitality, which broadly means receiving and entertaining strangers or guests in a friendly, generous and liberal way. The term 'entertainment', in the context of the Income-tax Act, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hospitable in providing for the wants of a guest in a liberal and generous manner. If the act of entertaining is on a lavish and a grand scale involving wasteful expenditure, it would, no doubt, amount to entertainment. On the other hand, if the acts or practice of being hospitable in the sense of providing meals, drinks or other wants of persons entertained, whether they may be employees, workmen or officers, servants or agents in the service of an assessee, as an express or implied condition of service, they would not amount to acts of entertainment. Similarly, if the acts or practice of being hospitable in the sense of providing meals, drinks or satisfying any other wants of guests, whether they are friends, strangers, or customers, as a part and parcel of express or implied terms and conditions of business, trade or on account of long-standing custom in such trade, business or profession, they would not, in our opinion, amount to acts of entertainment. It is only in the area lying between these two termini that the difficult questions arise, and as regards acts falling in such area we are of the opinion that we should adopt the broad dictionary meaning of the term 'entertainment' which we have indicated above. We think that the revenue was right when it was contended on its behalf that entertainment is hospitable treatment of guests and every act of entertainment includes hospitality. But, in our opinion, that would not warrant the converse position to be correct and every hospitability would not constitute entertainment. Hospitality shown on accounting of obligation of business arising as a result of an express or implied contract or arising on account of the long-standing custom of a trade, business or profession, cannot amount to entertainment, and acts done in discharge of such obligation cannot be included and covered in the term 'entertainment' without violence to language.
18. On behalf of the revenue, three cases were pointed out in support of its contention that every act of hospitality must be termed as 'entertainment'. The first decision was of the House of Lords in Associated Newspapers Group Ltd. v. Fleming (Inspector of Taxes)  2 All ER 574;  AC 628 . The question arose in that case, whether the Associated Newspapers Group Ltd., which employed a large staff of journalists who, for purposes of gathering news items suitable for publication in the company's papers, often found it necessary to provide drinks, meals, etc., to the informants, was entitled to claim deduction in respect of those expenses in arriving at its profits for income-tax purposes notwithstanding the provisions of section 15(1)(a) of the Finance Act, 1965, which, in effect, disallowed the allowance 'for any expenses incurred in providing business entertainment'. A contention was raised on behalf of the newspaper-companies that though the expenses were admittedly business entertainment expenses, they were still incurred in the provision by the assessee-company of anything which it was its trade to provide and, therefore, the prohibition contained in section 15(1)(a) of the Finance Act, 1965, would not preclude deduction of the expenses as provided in section 15(9) of the said Act. Negativing this contention, it was held that the company was not entitled to deduct the expenses in question since they had been incurred in the provision of entertainment and not in the course of the company's trade which was to provide newspapers only. Our attention has been drawn by the learned advocate for the revenue to the observations made in the speeches of the different Law Lords in rendering the said judgment. It was contended by the revenue that in Associated Newspapers Group Ltd.'s case  AC 628;  2 All ER 574, though it was recognised by the House of Lords that it was necessary to provide entertainment to the informants in the shape of drinks, meals, etc., yet the expenses were held to be inadmissible. The first observation on which reliance was placed by the revenue is to be found in the speech of Lord Reid, which reads as under :
'Before dealing with its specific provisions it is necessary to have in mind the mischief which it is obviously designed to prevent. For a number of year there had been much public criticism of the lavish expenditure daily to be seen in restaurants and elsewhere on business lunches and the like, and of other methods of business entertainment which had become notorious. It must have been to be impracticable for the tax authorities to separate entertainment which was reasonable from that which was not. Normally, where traders do not derive any personal benefit from business expenditure no question arises. But here the givers of the entertainment benefited as well as the guests so that to a large extent they were really entertainment themselves at the public expense. In 1965 Parliament thought it necessary to take drastic action so that, as often happens, in such cases, the innocent must suffer as well as the guilty.'
19. The next observation on which reliance has been placed by the revenue is to be found in the speech of Lord Morris of Borth-y-Gest at page 582 which is in the following terms :
'I think that it would be surprising if the legislature, having decided as a matter of policy and principle, to prohibit the deduction of business entertainment expenses, had further decided to make so vast a departure from such policy and principle.'
20. The third observation which was pressed into service be the revenue is to be found at page 586 in the speech of Lord Simon of Glaisdale, which reads as under :
'Before 1965 the test whether an expense was deductible for the purpose of computing profits or gains chargeable to tax was (in circumstances such as the instant case) whether it was wholly and exclusively laid out or expended for the purpose of enabling the taxpayer to carry on and earn profits in the trade in question : see Income Tax Act 1952, section 137(a) (now Income and Corporation Taxes Act, 1970, section 130(a)); Strong & Co. of Romsey Ltd. v. Woodifield  AC 448, (per Lord Davey); Bentleys, Stokes & Lowless v. Beeson (Inspector of Taxes)  33 TC 491 (entertainment expenses). Reasonable as the taxpayers' claim to deduct entertainment expenses may have seemed in that particular case, by 1965 it was conceived that the law as it then stood was being abused. What was called 'expense-account living' had become notorious. Expenses, even 'wholly and exclusively' incurred in trading, were thought to ensure to raise certain individual taxpayers' real incomes net of tax in such a way as to offend against general nations of fiscal equity. In some instances it was the mere lavishness or extent of the entertainment which offended; in others an element of reciprocity in entertainment was suggested. Courts of law have no means of knowing how far criticisms of this sort are justified and it is not ordinarily any part of their function to form any judgment thereon. But it is very much part of the duty of the courts, in their task of statutory interpretation, to ascertain as best they can what was the mischief as conceived by Parliament for which a statutory remedy was being provided; nor is it necessary nowadays for courts to affect ignorance of what is notorious. But a mere reading of section 15 of the 1965 Act against the background of the proceeding law can leave no doubt that it was Parliament's conception that expenditure on business entertainment charged as a deduction against gross trading income was being fiscally abused, or that Parliament in section 15 was seeking to provide a remedy for what it conceived as such abuse.
Nor can there be any doubt about the method which the draftsman chose adopt in order to provide the remedy. Experience must have taught him that if a fiscal abuse is too precisely remedied, taxpayers with expert advice will find a means of evading the fiscal control. To counter this, the draftsman may spread his net very wide at first, in order to make sure that nothing gets by which should not; and he will then re-examine to ensure that nothing has been caught in the net contrary to fiscal equity, and readjust accordingly.'
21. Lord Simon then examined the scheme of section 15 which by sub-section (1) prohibited deduction of any allowance on account of expenses incurred in providing business entertainment while computing the profits or gains chargeable to tax under Schedule D, other than those incurred for entertainment of overseas customers of a trader carrying on trade in the United Kingdom. Sub-section (5) defined 'business entertainment' to mean entertainment (including hospitality of any kind) provided by a person or by a member of his staff in connection with a trade carried on by that person but does not include anything provided by him for bona fide members of his staff unless its provision for them is incidental to its provision also for others. Sub-section (9), not withstanding the prohibition contained in sub-section (1), permitted the deduction of the expenses incurred in the provision by any person of anything which it is his trade to provide and which is provided by him in the ordinary course of that trade for payment or with the object of advertising to the public generally, gratuitously. Lord Simon in the context of that scheme further observed at page 587 of  2 All ER 574 (HL) in the following terms on which the assessee has relied in support of its contention :
'But then the has appreciated that in spreading the net so wide he has, inconsonant with fiscal equity, caught certain expenses of particular trades where similar expenses of other trades would be deductible as ordinary business expenses and not treated as entertainment expenses. This is because the phrase 'provide entertainment' is ambiguous. It can mean either 'give hospitality' or 'purvey the subject-matter of the entertainment (and perhaps also the catering) industry. The draftsman therefore added sub-section (9) to leave no room for argument that the ordinary trade expenses of the entertainment and catering industries are deductible in the same way as the ordinary trade expenses of other industries.
The draftsman had another, similar, purpose, too, in sub-section (9). Apparently, expensive gifts, charged against gross profits in computing profits and gains chargeable to tax, had been sought to have been the subject of a similar sort of abuse as business entertainment expenses. So again the draftsman spread his net wide to prevent evasion; and by sub-section (8) made the section apply to the provision of all gifts (other than inexpensive gifts incorporating an advertisement, not being gifts of food, drink, tobacco or a token or voucher exchangeable for goods).'
22. The assessee-company also relied on the observation in the speech of Lord Morris of Borth-y-Gest at page 583 of  2 All ER 574 in support of its contention that entertainment does not include every kind of hospitality. The said observation runs as under :
'Various explanations of sub-section (9) were offered in the Court Appeal. With every respect I find them unconvincing. Thus, it was said that one example of the need for the provisions of sub-section (9) was to be found by considering the case of a restaurant proprietor : it was said that he incurs expenses in providing entertainment for which he is paid and that he might, without sub-section (9), find himself in the position of having his receipts taxed without being allowed to deduct the expenses he has incurred in providing the entertainment. I cannot agree with this. If, in connection with a trade which he carried on, someone takes a party of guests to a restaurant and, as host, and at his own expense, orders food and drinks for them it cannot, in my view, be said that the restaurant proprietor is providing entertainment (including hospitality) within the meaning of section 15. As was said by Romer L.J., in delivering the judgment of the Court of Appeal in Bentleys, Stokes & Lowless v. Beeson (Inspector of Taxes  33 TC 491, 'Entertainment involves inevitably the characteristic of hospitality.'..... Can the taxpayer-company say that their expenses (as now in question) were incurred in the provision by them of newspapers or news which it is their trade to provide It is here that I would revert to the contrast between expenses incurred in providing entertainment and hospitality in 'connection with a trade' and expenses incurred'in the provision' by a trader of 'anything which it is his trade to provide'. The hospitality expenses or the business entertainment expenses were incurred by the taxpayers company 'in connection with' their trade and doubtless were wholly and exclusively incurred for the purposes of their trade, but they were not expenses incurred in the narrower sense of being expenses incurred 'in' the provision or production of their newspaper.'
23. We do not think that this decision of the House of Lords can be of much assistance to the cause of the revenue. In the Associated Newspapers' case  2 All ER 574;  AC 628 , the House of Lords was considering a limited question, viz., whether the taxpayer-company there, which admittedly incurred business entertainment expenses as defined in sub-section (5) of section 15, was entitled to claim deduction under sub-section (9) on the ground that they were incurred in providing in something which it was its trade to provide. The House of Lords rejected this claim as the taxpayer company's trade was to provide newspapers, not entertainment. In that case, the question as to what would constitute entertainment expenses did not arise as it was conceded by the taxpayer-company that they were business entertainment expenses and but for sub-section (9) it would not have been able to get the deduction, which it should have before the provision was brought on the statute book in 1965. Moreover, sub-section (5) of section 15 of the Finance Act, 1965, defined the term 'business expenses' so as to include within its compass hospitality of any kind whatsoever. The opinion given by the House of Lords was, therefore, in the context of the particular scheme adumbrated in section 15. The British Parliament had in involving the scheme kept in mind the expenses laid out by providing something in the course of business or trade. It is no doubt true that with effect from 28th February, 1970, the Indian Parliament has also prohibited deduction on account of entertainment expenses. Unfortunately, however, it has not thought fit in its wisdom to define the term 'entertainment expenses' or to evolve a scheme as done by the British Parliament. We have, therefore, to keep in mind the ordinary and natural meaning of the term 'entertainment' in order to find out whether the prohibition contained in sub-section (2A) and (2B) operates in a given case.
24. The second decision on which reliance was placed by the revenue is of the Court of Appeal in Bentleys, Stokes & Lowless v. Beeson (H. M. Inspector of Taxes)  33 TC 491 . A question arose in that case, whether the expenses incurred by a firm of solicitors in entertaining its clients was allowable deduction under Schedule D. The Special Commissioner were of the opinion that the provision of entertainment was not necessary for professional purposes and that the expenses could not be wholly divorced and exclusively laid out for the purposes of the profession. On appeal to the High Court, Roxburgh J. allowed the appeal and reduced the assessment by the sum claimed. The Crown carried the matter to the Court of Appeal. The following observation from the judgment of Romer L.J. was pointed out to us by the revenue in support of its connection that entertainment involves necessarily the characteristic of hospitality :
'The sole question is whether the expenditure in question was 'exclusively' laid out for business purposes, that is : What was the motive or object in the mind of the two individuals responsible for the activities in question It is well established that the question is one of the fact : and again, therefore, the problem seems simple enough. The difficulty however arises, as we think, from the nature of the activity in question. Entertaining involves inevitably the characteristic of hospitality.'
25. We do not think that the decision in Bentley's case  33 TC 491, can take the cause of the revenue any further. The Court of Appeal agreed with Roxburgh J. that the Special Commissioners were clearly in error in holding that it was not necessary for the firm of solicitors to incur expenditure on meals for professional purposes and that the expenditure was entirely divorced from the element of hospitality and the relationship of host and guest, though it was convenient, customary and a matter of good business policy. Romer L. J., on the contrary, observed that if the activity be undertaken with the object both of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then such activity cannot be said to be wholly and exclusively for business. On the facts, as stated by the Commissioners, the Court of Appeal found that the whole drift of the facts was towards the business character of the lunches and no fact indicative of a social character was found in the said acts of the firm in entertaining its clients.
26. The third decision to which the revenue has referred is of the Allahabad High Court in Brij Raman Das & Sons v. Commissioner of Income-tax : 104ITR541(All) , where the court was concerned with a claim of deduction by an assessee-firm carrying on business in banarsi goods on account of shop expenses, which included partly a sum for providing tea, lassi, jalpan, etc., to the customers. The court, speaking through Gulati J., while negativing the contention urged on behalf of the assessee that 'entertainment' does not include the provision of refreshment but is confirmed to amusement and gratification of some sort other than food, meat and drinks, held that 'entertainment expenditure' would, in its opinion, include all expenditures incurred in connection with business on the entertainment of customer and constituents, and that such entertainment may consist of providing refreshments or it may consist of providing some other sort of entertainment. We think, with respect to the learned judges of the Allahabad High Court, that that decision is an over simplification of the problem and they have proceeded, as it appears from the judgment, on the simple meaning of the term 'entertainment' without considering the aspect in detail to which we have referred above.
27. On behalf of the assessees our attention has been invited to the observations made by the learned author in Iyengar's Income-tax, sixth edition, volume 2, at page 1048, where it has been stated :
'These drastic provisions are bound to highlight and bring up for consideration the precise meaning of the words 'in the nature of entertainment expenditure'...... It is, however, a moot question how far expenses incurred by an assessee in providing food, tea or other refreshments to its employees (and, on the same logic, its customers or clients) - whether it is established that such provision is almost obligatory on the assessee due to exigencies of business, can be described an expenditure 'in the nature of entertainment expenditure', and would be governed by the limitations in sub-sections (2) to (2B).'
28. It is difficult, therefore, to lay down a hard and fast strait-jacket formula so as to answer various contingencies arising from time to time as to what expenses would be classed as entertainment expenses in the present context of the Income-tax Act, where no scheme as one we find in section 15 of the Finance Act of 1965 of the United Kingdom is to be found. We think that it would be over simplification of the problem to accept the broad submission made on behalf of either of the parties. We do not think that we should be justified in laying down any formula so as to provide ready-made answer to this problem; but, in the context of legislative intent evinced from the gradual evolution of the present provisions contained in sections 37 (2A) and (2B), we venture to indicate a few broad tests so as to facilitate a taxpayer to understand and the revenue to determine the nature of entertainment expenses though in each case in the ultimate analysis it would be a question of fact depending on many factors, more particularly in the absence of a well-defined scheme in the Indian statute. The following broad tests, in our opinion, will provide a guide-line to determine the nature of expenses allowed to be entertainment expenses :
(a) If the provision of food, drinks or any amusement to a client, constituent or customer is on lavish and extravagant scale, or is of wasteful nature, it is entertainment per se.
(b) If the provision of food or drinks to a client, constituent or customer is in nature of bare necessity, or by way of ordinary courtesy, or as an express or implied term of contract or employment settled out from long-standing practice or custom of trade or business, it will not amount to entertainment.
(c) If the provision of food or drinks to a client, customer or constituent is in liberal and friendly way, it may amount to entertainment having regard to the place, item and cost of such provision.
(d) The provision of amusement to a client, customer or constituent by way of hospitality or otherwise will always be entertainment.
29. In the view of the matter which we are taking, therefore, we answer both the questions in the negative in both the references since it has been found on the facts by the Tribunal that it was not in dispute between the parties that up-country constituents of the assessee came to Ahmedabad for the purpose of the business with the assessee in Income-tax Reference No. 64 of 1974, and having regard to the nature and magnitude of the business of the assessee, it would be necessary for the assessee to make arrangements for providing meals to its up-country constituents who visit the Ahmedabad for business dealings with it. The Tribunal also found in both the references that it was not the department's case that the assessee was throwing lavish parties or arranging banquets for its constituents and the expenses were claimed on that court. Similarly, in Income-tax References No. 151 of 1974, the Tribunal has found that the facts in the case before it were similar to the facts in Income-tax Officer, Ahmedabad v. Gautamkumar Rajendrakumar (I.T.As. Nos. 1366 to 1367 of 1972-73) out of which Income-tax Reference No. 64 of 1974, arises. The Tribunal has agreed with the Appellate Assistant Commissioner who has found that it was customary for the assessee due to very long-established tradition that farmers who came to deliver the goods, i.e., cotton, groundnuts, rice, pulses, were given meals from the kitchen run by the assessee and if the assessee failed to give this normal courtesy, it apprehended that the farmers might offer their produce to other competitors in the field of the assessee and the assessee would lose the goods. The Appellate Assistant Commissioner has also found that the expenditure was for serving ordinary meals to the employees as well as to the farmer customers and they were not such which entertained or amused the guests since the assessee provided served meals as a bare necessity of the business. In that view of the matter, therefore, these references must be rejected and we answer the question referred to us in the negative and against the Commissioner, who shall pay costs of both these references to the assessees.