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Commissioner of Income-tax Vs. Mewar Sugar Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 24 of 1977
Judge
Reported in[1986]157ITR444(Raj)
ActsIncome Tax Act, 1961 - Sections 37(2B)
AppellantCommissioner of Income-tax
RespondentMewar Sugar Mills Ltd.
Appellant Advocate J.L. Daga, Adv.
Respondent Advocate R. Mehta, Adv.
Excerpt:
.....under the said act. - neither the department nor the assessee were satisfied with the order of the appellate assistant commissioner. , clearly fell within the expression 'entertainment expenses 'under section 37(2b) of the act......of directors who came to attend the board meeting at bhopal-sagar.(ii) rs. 3,428 being the expenses incurred on welcoming the chief minister.(iii) rs. 477 spent on welcoming the industries minister, (iv) rs. 2,907 spent on serving tea, cold drinks, etc., to its customers, debited in office expenses account.(v) rs. 2,277 spent on entertaining company's guests and visiting officials.'3. the total of the aforesaid items comes to rs. 11,144. the income-tax officer by his order dated february 28, 1975, disallowed the aforesaid expenses on the ground that they were entertainment expenses as contemplated by section 37(2b) of the income-tax act, 1961 (for short ' the act' herein). being dissatisfied with the assessment order in respect of the aforesaid items, the assessee went in.....
Judgment:

S.K. Mallodha, J.

1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (' the Tribunal '), has referred the following two questions for the decision of this court :

'(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the messing expenses of Rs. 2,055 incurred by the assessee for providing meals to the directors is business expenditure laid out wholly for the business and are not in the nature of entertainment expenses within the meaning of Section 37(2B) of the Income-tax Act and are allowable for the assessment year 1972-73?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the expenses of Rs. 7,567 incurred by the company in providing tea, cold drinks, etc., to its customers, in reception of the Chief Minister and the Industries Minister and entertainment of guests are not in the nature of entertainment expenses within the meaning of Section 37(2B) and are allowable for the assessment year 1972-73?'

2. During the accounting period corresponding to the assessment year 1972-73, the assessee-respondent, amongst others, claimed the following expenses:

' (i) Rs. 2,055 being messing expenses of directors who came to attend the board meeting at Bhopal-Sagar.

(ii) Rs. 3,428 being the expenses incurred on welcoming the Chief Minister.

(iii) Rs. 477 spent on welcoming the Industries Minister,

(iv) Rs. 2,907 spent on serving tea, cold drinks, etc., to its customers, debited in office expenses account.

(v) Rs. 2,277 spent on entertaining company's guests and visiting officials.'

3. The total of the aforesaid items comes to Rs. 11,144. The Income-tax Officer by his order dated February 28, 1975, disallowed the aforesaid expenses on the ground that they were entertainment expenses as contemplated by Section 37(2B) of the Income-tax Act, 1961 (for short ' the Act' herein). Being dissatisfied with the assessment order in respect of the aforesaid items, the assessee went in appeal.

4. The Appellate Assistant Commissioner was of the view that the provision of meals to the directors of the company who came from various parts of the country did not constitute entertainment expenses. He, therefore, deleted the addition of Rs. 2,055 made on that account. So far as the additions mentioned at serial Nos. 2, 3 and 5 above, the additions made by the Income-tax Officer were confirmed. Regarding disallowance of item No. 4, it was reduced by him to Rs. 500 on the ground that the expenses incurred by the assessee-respondent was for providing tea, etc., to the company staff and, as such, it did not amount to entertainment expenses. Neither the Department nor the assessee were satisfied with the order of the Appellate Assistant Commissioner. The Tribunal, vide its order dated September 21, 1976, after taking into consideration the amount of entertainment expenses which were disallowed and have been detailed in para 24 of its order, recorded the following conclusion:

' We have gone through the details of the expenses; but for the expenses of Rs. 1,022 which represented the payment of a hotel bill, the rest of the expenses were petty and were incurred on tea, coffee, etc. Such expenses cannot be treated as entertainment expenses. There was, therefore, no justification in disallowing them. Excepting the expenditure of Rs. 1,022 which represented the payment of a hotel bill, the rest of the expenses will be allowed.'

5. The Commissioner of Income-tax submitted an application under Section 256(1) of the Act to the Tribunal. The Tribunal allowed the application and has referred the aforesaid question for our decision.

6. Before the Tribunal, it was contended on behalf of the Department, that the messing expenses and the expenses incurred on tea, etc., clearly fell within the expression ' entertainment expenses ' under Section 37(2B) of the Act. The argument raised on behalf of the assessee before the Tribunal was that the expenses did not constitute entertainment expenses at all and they were business expenses legitimately incurred in the course of the carrying on of the assessee's business. The Tribunal, as stated above, came to the conclusion that such expenses cannot be treated as entertainment expenses and, therefore, allowed them except Rs. 1,222, which represented the payment of hotel bill.

7. In Devichand Bastimal v. CIT (D.B. Income-tax Reference No. 9 of 1977) and Bhanwarlal Manakchand v. CIT (D.B. Income-tax Reference No. 42 of 1977) decided on April 24, 1985 , we had answered an identical question regarding entertainment expenses as envisaged by Section 37(2B) of the Act. It was held in Devichand's case and Bhanwarlal's case, that the messing expenses or expenses incurred for tea, etc., are not entertainment expenses and thus not hit by Section 37(2B) of the Act. While dealing with the question, we have considered the authorities of the various High Courts and preferred to follow the view taken in CIT v. Patel Brothers & Co. Ltd. : [1977]106ITR424(Guj) and CIT v. Shah Nanji Nagsi : [1979]116ITR292(Bom) and the other High Courts which have taken a similar view and did not subscribe to the view taken by the Full Bench of the Kerala High Court in CIT v. Veeriah Reddiar : [1977]106ITR610(Ker) .

8. For the reasons given in Devichand's case and Bhanwarlal's case, we hold that the Tribunal was right in holding that the messing expenses of Rs. 2,055 which were spent by the assessee for providing meals to the directors were business expenditure laid out wholly for the business and that they are not in the nature of entertainment expenses within the meaning of Section 37(2B) of the Act and, as such, are allowable for the assessment year 1972-73. We further hold that in the facts and circumstances of this case, the Tribunal was also right in allowing a sum of Rs. 7,567 which were incurred by the assessee for providing tea, cold drinks, etc., to its customers in the reception of the Chief Minister and the Industries Minister and entertainment of guests and the expenses incurred in connection with the entertainment of guests were not in the nature of entertainment expenses within the meaning of Section 37(2B) of the Act and, therefore, they were rightly allowed by the Tribunal for the assessment year 1972-73,

9. We, therefore, answer the aforesaid questions Nos. 1 and 2 in the affirmative, i.e., in favour of the assessee and against the Revenue. There will be no order as to costs of this reference.

10. Let the answers be returned to the Tribunal in accordance with Section 260(2) of the Act.


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