Customary customer hospitality is not entertainment expenditure under the Income-tax Act, favouring the assessee.

Customary business hospitality such as tea, coffee, pan, cool drinks and similar refreshments supplied to customers was held not to be entertainment expenditure under section 37(2A) or section 37(2B) of the Income-tax Act, 1961. The court accepted that ordinary courtesies extended in the course of business do not, by themselves, acquire the character of entertainment expenditure. The questions referred were answered in favour of the assessee, and the reference was disposed of accordingly.

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Issues: Whether expenditure on tea, coffee, pan, cool drinks and similar refreshments provided to customers constituted entertainment expenditure within the meaning of section 37(2A) or section 37(2B) of the Income-tax Act, 1961.

Analysis: The expenditure in question was incurred as customary courtesy and hospitality to customers in the course of business. The relevant view that such ordinary business courtesies do not amount to entertainment expenditure had already been accepted as the preferable interpretation.

Conclusion: The expenditure on providing tea, coffee, pan, cool drinks and similar items to customers was not entertainment expenditure under section 37(2A) or section 37(2B) of the Income-tax Act, 1961, and the answer was in favour of the assessee.

Final Conclusion: Both referred questions were answered in favour of the assessee, and the reference was disposed of accordingly.

Ratio Decidendi: Ordinary business courtesies and customary hospitality extended to customers do not, by themselves, constitute entertainment expenditure for the purpose of section 37 of the Income-tax Act, 1961.

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