Business refreshments are not entertainment expenditure under section 37(2B) when provided to customers and trade constituents in ordinary business dealings.

Expenditure on meals, tea, soft drinks and similar refreshments provided to trade constituents and customers in the course of business was not treated as entertainment expenditure under section 37(2B) of the Income-tax Act, 1961. The Court followed its earlier ruling that messing or comparable refreshment expenses incurred for business contacts do not, by that fact alone, fall within the statutory disallowance. The expenditure therefore remained allowable as a deduction.

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Issues: Whether expenditure incurred on providing meals, tea, soft drinks and similar refreshments to trade constituents and customers constituted entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961, and was therefore disallowable.

Analysis: The issue was covered by an earlier decision of the same Court holding that messing or similar refreshment expenses incurred for business contacts could not be characterised as entertainment expenditure under section 37(2B). The nature of the expenditure, as described, did not bring it within the statutory disallowance.

Conclusion: The expenditure was not entertainment expenditure under section 37(2B) and was allowable as a deduction.

Ratio Decidendi: Refreshments provided to customers or trade constituents in the course of business do not, by that fact alone, amount to entertainment expenditure for the purpose of section 37(2B) of the Income-tax Act, 1961.

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