1. These references relate to 'entertainment expenditure' under the I.T. Act, 1961, a topic which is not very entertaining to deal with. Even to trace its legislative history is rather a bore. Right from the beginning of income-tax in this country, till very recently, there was nothing in the statue against the allowance of entertainment expenditure. Just like any other expenditure, entertainment expenditure too had to satisfy the test of 'wholly and exclusively' for the purposes of the business. That was all. But in 1961, Parliament came down with an elaborate provision for disallowance. It was not a wholesale ban on the claim for deduction under this head. Nor did the provision apply to every taxpayer. It applied only to the company assessments, to start with. It was extended later to other assessees. In 1970, Parliament tightened its grip. From 1970 onwards, no expenditure was allowed at all to anybody if it was spent in business entertainment in India. This ban continued right up to 1977. In that year, Parliament went back to square one. How long this is going to last is anybody's guess. All we can say is that Parliament has not been pursuing a clearheaded policy about making this expenditure a non-deductible item. Perhaps we ought not to blame Parliament for begin in two minds about how to legislate in this matter. Perhaps, the nature of the expenditure itself accounts for the shifts and changes in legislative policy. For, as in most other things, there is both good and bad in entertainment expenditure. It certainly pays a trader to speak money for making his customers happy. He would do more business that way combining it with pleasure. In this sense, entertainment expenditure is quite a legitimate allowance or charge against profits from the point of view of commercial expediency, if not, from any other view-point, But there is another side to this picture. At current high rates of income-tax, which leave pretty little in the hands of upper bracket taxpayers, entertainment expenditure, allowed without any questions asked, opened a new vista. Since business entertainment as an item of outgoing is closer to consumption than to production, taxpayers could easily smuggle in their own private expense accounts into this head of outgoing in their business. Thus, conspicuous consumption of the rich and the super-rich became tax deductible as entertainment expenditure. This was particularly so because of the difficulty in the way of dissecting the expenditure as so much for the purpose of the business and so much for the personal purposes of the proprietor. Like charity, entertainment began at home and, in a few cases, entertainment, like charity, not only at home, but it ended there.
2. This was the trend almost everywhere in the world, wherever, it is they had an income-tax on trades and professions. Only very recently, sovereign legislatures woke up to this scandal of taxpayers who could not afford deductible entertainment expenditure having to pay the price of higher rates of income-tax just so that prosperous businessmen might indulge their Bacchanalia at the exchequer's expense. Out amendments did not come too soon when they came in 1961. Britain was late by four years, if that it is a matter of comparative pride. But the amendments in the United Kingdom law were unlike ours. They banned the allowance whose business entertainment, save those necessarily incurred by people whose business it was to provide entertainment. Entertainment business, in short, could claim allowance for business entertainment, but not other business. The House of Lords decided, for instance, that the cost of entertainment on food and drink to correspondents, reporters and informers of the Daily Mail and the Evening Standard which was debited in the accounts of the newspaper organization were not deductible. They said that the business was to publish newspapers and not to prove entertainment.
3. Our Parliament preferred to work without a definition. And, as we pointed out earlier, without a steadfast sense or direction. These produced a happy hunting ground for tax litigation. Those with moneys to spare not only indulged in entertainment during the previous years but entered into mettlesome argument about it with the Department during the assessment years that followed. In this manner, every other case ultimately reached the courts.
4. Part of the endeavour of counsel on both sides was to feed us with reported cases of different High Courts including one of our own. But we are inclined to regard them all as so many illustration of the problem and no more. All of them had, more or less, a common theme to consider. The assessees who figured in the references had provided at their own cost food and drink to their customers and claimed the expenditure as deductible. And the question in each case was whether this was entertainment expenditure or something else. The Allahabad, the Kerala and the Punjab and Haryana High Courts held that it was entertainment expenditure and hence was subject to the statutory ban or restriction. The Gujarat and the Madras High Courts took the opposite view.
5. In one or two reported cases, an attempt was made at understanding what the expression 'entertainment expenditure' meant as employed by Parliament in s. 37 of the I.T. Act. They proceeded on the footing that since Parliament had not bothered to define the phrase, it was the religious duty of courts to become animated dictionaries themselves. One or two decisions took the line that Parliament had given an indication that 'entertainment expenditure' must be given a fairly wide berth to cover even ordinary hospitality. They though than they had the cue from the words 'in the nature of' occurring in the statutory expression 'any expenditure in the nature of entertainment expenditure'.
6. We think, with respect, that entertainment expenditure does not become a word with an expansive meaning because of the prefix 'in the nature of'. We can understand a case where the legislative draftsman first defines entertainment expenditure and then proceeds to use the word 'in the nature of entertainment expenditure'. In that case, we can say that anything which is akin to, but not quite the same thing as, entertainment expenditure is also covered by the disallowing provision. That is not the case in s. 37. If Parliament intended to include 'non-entertainment expenditure' also within the statutory bar, this was not the drafting method to bring about the result.
7. Nor can we appreciate learned judges scurrying to the dictionaries to get at the meaning of a word like 'entertainment' merely because the statue does not favour us with a select definition. It is now more than a 100 years since Macaulay thrust this language of the courts, at least the superior ones. Most of the judicial prose in this country, barring a conspicuous exception or perhaps two, can be got on without having to look into a dictionary. Even our legislative draftsman is endowed only with a limited vocabulary. His composition is basic English of a kind which is full of ordinary words in common speech, excepting where he has to refer to scientific or technological terms as in the Central Excise Act and the Customs Tariff Act. Entertainment is a word or ordinary speech. Even those who know very little English can understand what entertainment, entertainment tax, variety entertainment and other cognate expressions indicate. This being so, the only reason why anyone of us should at all look up the word in the dictionary is that we would be interested in finding out whether entertainment also holds a peripheral or a distant thought. This is quite a wrong use of the dictionary for statutory construction. If the word is in common speech and there is no special definition in the Act, then it must be understood in the way it is understood in common speech. People do not speak to each other through dictionaries. If, on the contrary, a special meaning were intended, an indication would or must be there in the statute itself, in which event a reference to the dictionary would be uncalled for. In either case, the dictionary is useless as an aid to the construction of words in common usage. It is often a downright hindrance.
8. In Britain, as we said, Parliament expressly enacted that business entertainment included hospitality. Why Because in ordinary parlance entertainment does not include hospitality and they in Britain wanted to disallow even hospitality expenditure by including it within the disallowing provision. Our Parliament did not use a similar drafting device. It is, therefore, a just inference that the intention is not to disallows hospitality expenditure. In most of the repeated cases the argument advanced was that this or that object of expenditure was not entertainment, but hospitality. In one case which came before this court it was found that soft drinks were served ; it was regarded as business hospitality. In another case, an assessee served his customers both soft and hard drinks. The assessing authority drew a line at soft drinks. This court, however, regarded even alcoholic drinks as falling within the scope of hospitality, having regard to the circumstances of the case.
9. In one or two reported cases it was said that expenditure must be lavish in order to be regarded as entertainment expenditure. The meaning is not quite clear. We are not any the better for knowing that lavish expenditure is entertainment and not lavish expenditure is non-entertainment. How lavish is lavish anyway Nobody can say. This concept has obviously been adopted by the learned judges from the Notes on Clauses which were distributed along with the printed Bill in 1961. We like to imagine that if Parliament had though fit to use the epithet 'lavish' as a condition for disallowance it would have been worse that even in the absence of such an epithet, we should be disposed to read it in the Act as a matter of construction.
10. What then are we to do with the expression entertainment We have said it is not out function to rush in with out definition where Parliament has feared to tread. For, our function, as a court of construction, is not to define, but to explain, elucidate, and expound, all for the purpose of seeing whether the section in question applies or not to the facts on hand. To such an exercise of the judicial function definition is unnecessary. It is enough that we understood how the Legislature looks at things and what it is that the Legislature is driving at. We should not mind if this process is called 'purposive' or 'activist'. We do not consider them as words of abuse any way.
11. It is, we think, reasonable to assume that Parliament had picked out entertainment as a non-deductible item not because it is a personal expenditure of the taxpayer, but precisely because it is a business expenditure. Personal expenditure of a taxpayer, paid for from his business funds, does not need any specific section for disallowance. For that kind of spending is an application of the profits and not a charge on the business. Since only business entertainment is to be subject to disallowance, it is reasonable to understand the word to bear a meaning which no businessman is likely to misunderstand. A businessman does not go out of the way in offering to his customer a cup of tea or coffee, or, for that matter, any cup that cheers, any more than we should regard a smiling welcome or a pretty girl at the counter as entertainment. We ought not to see things from the point of view of a resistant consumer having a conscientious objection to accept a cup of coffee at the shop from the hands of a shopkeeper because he excepts that its cost would go into the price tag. A puritanical or kill-joy approach to this provision must, in our judgment, be ruled out as contrary to the intentions of Parliament. We respectfully agree, therefore, with the views expressed in some of the judgments that hospitality cannot be confused with entertainment. A customer is not entertained, in the real sense of the term, by being offered a cup of coffee in the shop any more than a guest is entertained is not the word for it. What you extend is only hospitality.
12. But it is altogether different if the trader wishes to provide amusement or entertainment to a customer or to any one with whom he wishes to transact business. Under modern business conditions expenditure of this kind may easily reach a point of no return. It is not easy to get a business party sign on the dotted line merely by providing him with entertainment whether it takes place at a board room or an apartment or at the Riviera. Customers, for the most part, are cool customers and for all the entertainment to which they are treated, they may yet strike a hard bargain. Catering to the instincts of the customers, rather than their good humour cannot, therefore, be productive of results, particularly when everybody knows the ways of everybody else, which is the world of modern business. Entertainment expenditure is thus mostly a waste and paradoxically enough, it is sought after precisely because most of it goes down the drain. Its chief attraction only lies in the opportunity it gives to the proprietor or the company director or the executive to have, at the cost of the business, his own expense account vouchsafed for eating, drinking, dancing, going places and God knows what else. It is, therefore, a proper caution that expenditure of this sort must be put to the most searching scrutiny in order to find out whether it falls outside the disallowing provisions. In order to be able to do that, the authority concerned, be it the ITO or a higher appellate authority or the Tribunal must consider all the attendant facts and circumstances, including the nature and object of the expenditure, similar practice in the particular line of business carried on by the assessee, the size of the expenditure in the earlier years, the business trends and prospects as a whole, the cross section of society from which the customers come, and any other relevant factors of commerce and business life that may be present in the case.
13. It might be thought that this way of explaining the statutory provisions, leaving matters to be decided by the fact-finding Tribunal in each and every case, as it arises is not quite a satisfactory solution to the problem. But this is how very many questions have got to be decided which arise under the I. T. Acts. After all, taxation takes note of the business realities as it finds them and only makes such inroads as are absolutely necessary for the purpose of disallowance and against the accepted postulates of commerce and accountancy. As we earlier indicated, Parliament did not set its face completely against entertainment expenditure even if the entertainment is one which we may not entirely approve of as a method of advancing the interests of the business. Again, as we indicated, there is clearly discernible an area of business hospitality which stands clearly outside the concept of business expenditure. It is, therefore, in this context that the statutory provisions disallowing entertainment expenditure, in whole or in part, have to be given effect to.
14. The assessee in the present reference are carrying on business of printing and publishing printed material. The question relating to entertainment expenditure cropped up in connection with the assessee's assessments for the years 1972-73 to 1974-75. The provision relating to entertainment expenditure which was in force during the material time was s. 37(2B) as enacted by s. 10 of the Finance Act, 1970, with effect from April 1, 1970. The provision so enacted wholly disallowed any expenditure in the nature of entertainment expenditure incurred within India by any assessee after February 28, 1970. None of the authorities in this case had gone into the nature of the expenditure in question on the lines we have indicated earlier. The assessee claimed certain expenditure as 'business promotion expenses'. The ITO disallowed the entire claim under s. 37(2B) without going into the details. The AAC held that the amounts spent towards alcoholic drinks, trips to Tirupathi and marriage presentations could alone be brought within s. 37(2B). He did not, however, advert to the other items of expenditure. This order of the AAC was confirmed in appeal by the Tribunal which again dealt with the matter in the following passage :
'The overall expenses under this head were claimed by the assessee as expenses connected with the pushing of sales, canvassing new business, arranging to see that the existing customers are satisfied so as to stick on to the clientele, etc. This includes hotel expenses, accommodation, etc. This includes hotel expenses, accomodation, etc. The Appellate Assistant Commissioner has already disallowed expenses included under this head on account of alcoholic drinks, trips to places of interest, marriage presents, etc., and allowed the balance of expenditure which does not involve any concept of entertainment in the light of the decision in CIT v. Patel Brothers & Co. Ltd. : 106ITR424(Guj) . As against the decisions of the other High Courts in : 106ITR610(Ker) (CIT v. Veeriah Reddiar) and : 110ITR815(Bom) (CIT v. Devkaran Nanjee Insurance Co. Ltd.), the Appellate Tribunal has in several cases found the tests laid down by the Gujarat High Court in Patel Brother's case : 106ITR424(Guj) , as the acceptable criterion. Following that decision the Appellate Assistant Commissioner's orders are upheld on this point.'
15. It is clear that the Tribunal has not given a proper consideration to the issue before them. Neither the reference to the case law on the subject nor the broad reference to the nature of the expenditure really meets with the requirement of an inquiry under the statute. In the absence of materials and a discussion of those materials by the Tribunal, we cannot answer the references in any satisfactory manner. The question of law which the Tribunal has referred to us is an under :
'Whether, on the facts and in the circumstances of the case, the sums of Rs. 22,666, Rs. 37,175 and Rs. 54,097 represent entertainment expenditure not allowable prior to its amendment by the Finance Act, 1976, under section 37(2B) of the Income-tax Act, 1961 ?'
16. For the reasons we have stated above, we cannot answer this question but must return the reference unanswered. The implication, however, is that the Tribunal should take up the appeal and consider the matter de novo in the light of our observations in the foregoing paragraphs.
17. The references are accordingly returned. There will be no order as to costs.