1991 (4) TMI 120 - HC - Income Tax

ITAT view upheld: 35% employee food and seminar expenses held outside s. 37(2A) disallowance scope

HC dismissed Revenue's appeal, affirming the ITAT's decision that 35% of the entertainment, seminar and conference expenditure was not hit by s. 37(2A) of ... Deduction u/s 37(2A) - Entertainment Expenditure - Whether, the Appellate Tribunal was correct both on facts and in law in holding that 35% of the expenditure out of entertainment, seminar and conference expenses was not hit by the provisions of section 37(2A) of the Income-tax Act ? - HELD THAT:- It is a finding of fact as to whether any part of the expense was incurred on the food, etc., of the employees. This finding of fact has been answered in favour of the assessee. It is necessary in such a case that certain amount of estimate has to be resorted to. The Tribunal has estimated such expense as 35%, which cannot be said to be unreasonable and, in any case, this estimate is also a question of fact. The expense on the eatables of the employees which is excluded from the purview of section 37(2A), includes expense which is incurred, inter alia, at the place of work of the employees. When the employees are having their food along with the company's customers in a hotel, in discharge of their official duties, the employees are taking food while at work because it is their work and duty to entertain the customers of the company. Therefore, wherever any expenditure is incurred on the food and beverages of the employees at the time when they are working, would obviously be excluded from the purview of section 37(2A). Issues involved: Interpretation of section 37(2A) of the Income-tax Act regarding the deductibility of entertainment, seminar, and conference expenses.In this judgment, the petitioner sought a reference on whether the Income-tax Appellate Tribunal was correct in holding that 35% of the expenditure on entertainment, seminar, and conference expenses was not subject to section 37(2A) of the Income-tax Act. The Commissioner of Income-tax disallowed the expenditure on the basis that it was not incurred on the factory premises but in hotels. However, the Tribunal found that the expenditure on food and beverages for employees, when incurred in the course of official duties, is excluded from section 37(2A) as per Explanation 2. The Tribunal estimated that 35% of the expense was on the food of employees, which was considered reasonable. The judgment emphasized that expenses incurred on employees' food during official duties are excluded from section 37(2A) and are considered part of their work and duty to entertain company customers. The decision was based on factual findings and the interpretation of the law.The judgment concluded that the determination of the percentage of expenses related to employees' food was a question of fact and self-evident in the context of the law. The Tribunal's decision was upheld, and the petitioner's request for reference was dismissed.