Business hospitality to trade customers is not entertainment expenditure when incurred in the ordinary course of trade.

Expenditure on meals and light refreshments provided to trade customers in the ordinary course of business was treated as normal hospitality, not entertainment expenditure under section 37(2B) of the Income-tax Act, 1961. The settled construction of "entertainment" excludes hospitality such as meals, drinks and similar amenities when incurred as part of established business practice, trade custom, or business obligation. On that basis, such outgoings fall outside the disallowance provision and remain deductible as business expenditure.

---

---

Issues: Whether expenditure incurred for providing meals and light refreshments to trade customers in the normal course of business constituted entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961.

Analysis: The reference was answered by applying the settled construction of the expression "entertainment" in section 37(2B). Hospitality in the form of meals, drinks or similar amenities does not amount to entertainment where it is shown as part of the ordinary and established course of business, trade or profession, or is required by long-standing trade custom or business obligation. Expenditure incurred by way of normal hospitality to trade constituents was treated as outside the mischief of the disallowance provision.

Conclusion: The expenditure on meals and light refreshments to trade customers was not entertainment expenditure under section 37(2B) and the disallowance was rightly deleted.

---