Routine customer hospitality is not entertainment expenditure and remains deductible business outlay for the relevant years.

Routine hospitality expenditure on tea, coffee and similar refreshments for customers in a printing and publishing business was treated as ordinary business outlay, not entertainment expenditure under section 37(2B) of the Income-tax Act. Because the assessment years preceded the 1976 amendment, the amended restriction did not apply. The expenditure was therefore allowable as business expenditure and the disallowance failed.

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Issues: Whether expenditure incurred on tea, coffee and similar routine hospitality to customers for the assessment years 1972-73 to 1974-75 was entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, and whether it was therefore disallowable.

Analysis: The expenditure was found, on the materials before the Tribunal, to be routine business expenditure incurred in the course of carrying on the assessee's printing and publishing business. The Tribunal held that it did not partake of the character of entertainment expenditure. The assessment years in question were prior to the 1976 amendment to section 37, and the amended restriction had no application to those years.

Conclusion: The expenditure was not entertainment expenditure and was allowable as business expenditure; the question of law was answered in the affirmative, in favour of the assessee.

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