Binding precedent upheld salary disallowance and treated customer hospitality as entertainment expenditure under the Income-tax Act.

Earlier binding rulings between the same parties governed the reference, so the Tribunal's finding that remuneration paid to two employees was unreasonable under section 40C was upheld and the salary disallowance for the relevant assessment years was sustained. Applying the same precedent, the Court also treated tea, coffee, coca cola, and similar hospitality provided to customers during business hours as entertainment expenditure within section 37(2A), making it disallowable. All referred questions were answered in favour of the Revenue and against the assessee.

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Issues: (i) Whether the Tribunal's finding that the remuneration paid to the two employees was unreasonable within the meaning of section 40C of the Income-tax Act, 1961, was supported by material; (ii) whether disallowance of part of the salary paid to them for the assessment years 1972-73 and 1973-74 was justified; (iii) whether expenditure on serving tea, coffee, coca cola, and similar items to customers during business hours constituted entertainment expenditure hit by section 37(2A) of the Income-tax Act, 1961.

Issue (i): Whether the Tribunal's finding that the remuneration paid to the two employees was unreasonable within the meaning of section 40C of the Income-tax Act, 1961, was supported by material.

Analysis: The questions were covered by the Court's earlier decision between the same parties for an earlier assessment year, and the same reasoning was applied to the present reference.

Conclusion: The question was answered in the affirmative, in favour of the Revenue and against the assessee.

Issue (ii): Whether disallowance of part of the salary paid to them for the assessment years 1972-73 and 1973-74 was justified.

Analysis: The issue stood covered by the earlier binding answer on the same point and was disposed of on the same basis.

Conclusion: The question was answered in the affirmative, in favour of the Revenue and against the assessee.

Issue (iii): Whether expenditure on serving tea, coffee, coca cola, and similar items to customers during business hours constituted entertainment expenditure hit by section 37(2A) of the Income-tax Act, 1961.

Analysis: The Court applied the earlier decision and treated the expenditure as falling within the statutory definition of entertainment for the purpose of disallowance.

Conclusion: The question was answered in the affirmative, in favour of the Revenue and against the assessee.

Final Conclusion: All the referred questions were answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Where a later reference raises questions already covered by an earlier decision between the same parties, the earlier ruling governs and the questions are answered accordingly; expenditure on hospitality to customers may fall within entertainment expenditure for disallowance purposes under the Act.

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