Entertainment expenditure includes hospitality drinks and water to customers, making the claim disallowable under tax law.

Expenditure on providing mineral and aerated water to foreign customers was treated as entertainment expenditure within Section 37(2A) of the Income-tax Act, making it disallowable under the statutory restriction. The court relied on authoritative precedent to hold that hospitality in the form of drinks and water could fall within the scope of entertainment expenditure. The contention that the amount was otherwise allowable under Section 37(1) was not examined, as it lay outside the referred question. The reference was answered against the assessee and the Tribunal's disallowance was upheld.

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Issues: Whether the expenditure incurred by the assessee on providing mineral and aerated water to foreign customers was expenditure on hospitality or entertainment so as to be disallowable under Section 37(2A) of the Income-tax Act, 1961.

Analysis: The controversy was held to be covered against the assessee by authoritative precedent, and the reference was confined to the interpretation of Section 37(2A). The contention that the amount could be allowed under Section 37(1) was not part of the referred question and was therefore not examined.

Conclusion: The expenditure was liable to be treated as entertainment expenditure within Section 37(2A), and the question was answered in favour of the department and against the assessee.

Final Conclusion: The reference was answered adversely to the assessee, and the disallowance sustained by the Tribunal was upheld.

Ratio Decidendi: Expenditure incurred on providing hospitality in the form of drinks and water to customers may fall within the scope of entertainment expenditure under Section 37(2A) and be disallowable according to the statutory restriction.

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