Business courtesy meals to customers are not entertainment expenditure and remain deductible under the income-tax law.

Rasoi and hotel expenses incurred for customers were treated as ordinary business courtesies, not entertainment expenditure, where the facts showed provision of meals to outstation customers in the course of established business practice. On that basis, the expenses did not fall within the mischief of section 37(2B) of the Income-tax Act, 1961, and remained admissible business deductions. The reference was therefore answered in favour of the assessee and against the Revenue.

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Issues: Whether rasoi expenses and hotel expenses incurred for customers were liable to be disallowed as entertainment expenditure under section 37(2B) of the Income-tax Act, 1961, or were admissible business deductions.

Analysis: The expenses were found to be small courtesies extended to customers and, on the facts recorded, amounted to provision of ordinary meals to outstation customers in the course of established business practice. Such expenditure was held not to fall within the mischief of entertainment expenditure. The questions stood covered by the principle that ordinary meals to outstation customers, provided as a business courtesy, are not entertainment expenditure.

Conclusion: The expenses were not entertainment expenditure and were allowable as deductions; the reference was answered in favour of the assessee and against the Revenue.

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