1985 (6) TMI 27 - HC - Income Tax

High Court rules messing expenses not disallowed under IT Act, Explanation 2 excludes,

The High Court of GUJARAT ruled in favor of the assessee, holding that messing expenses could not be disallowed under section 37(2B) of the Income-tax ... Business Expenditure, Entertainment Expenditure Issues:1. Interpretation of section 37(2B) of the Income-tax Act, 1961 regarding messing expenses.2. Determining the admissibility of entertainment expenses under section 37(2B) of the Income-tax Act, 1961.Analysis:The High Court of GUJARAT was tasked with addressing two questions referred by the Commissioner regarding the application of section 37(2B) of the Income-tax Act, 1961. The first question pertained to whether the Tribunal was correct in concluding that messing expenses were not disallowable under section 37(2B). The second question queried whether only a specific sum should be disallowed under the same section. The court highlighted the historical evolution of the relevant provisions, emphasizing the changes introduced by various Finance Acts. Notably, the court discussed the retrospective insertion of Explanation 2 by the Finance Act, 1983, which clarified the scope of 'entertainment expenditure' for the purposes of section 37(2B).Regarding the first question, the court examined the facts related to the case, where the assessee, a contractor with works in remote areas, claimed messing expenses for providing food and living facilities to employees. The Commissioner had allowed a portion of the claim, limiting the disallowance to Rs. 3,000. The court observed that the provision in Explanation 2 explicitly excluded expenditure on food provided to employees at work premises from the ambit of entertainment expenses. Consequently, the court ruled in favor of the assessee, affirming that messing expenses could not be disallowed under section 37(2B.However, the court declined to address the second question as no appeal was filed by the assessee, rendering it outside the purview of consideration. Consequently, the court answered question No. 1 in favor of the assessee and against the Revenue, while question No. 2 remained unanswered. The judgment concluded without any order as to costs, providing a comprehensive resolution to the issues raised before the High Court of GUJARAT.