Trade custom hospitality is not entertainment expenditure when incurred under a business obligation and remains allowable.

Hospitality expenditure incurred to provide messing or meals to trade constituents in accordance with a long-standing trade custom was not treated as entertainment expenditure under section 37(2B) of the Income-tax Act, 1961. Where such hospitality is rendered in discharge of an express or implied business obligation, or pursuant to established trade practice, it falls outside the disallowance for entertainment expenditure. The expenditure was therefore allowable, and the question was answered in favour of the assessee and against the Revenue.

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Issues: Whether expenditure incurred by an assessee for providing messing to trade constituents, in accordance with the custom of the trade, constitutes entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961.

Analysis: The expenditure was incurred to provide meals to upcountry customers as part of a long-standing trade practice. Hospitality shown on account of an express or implied business obligation, or arising from established trade custom, is not treated as entertainment expenditure for the purpose of disallowance under section 37(2B).

Conclusion: The expenditure did not amount to entertainment expenditure under section 37(2B) and was therefore allowable; the question was answered in the affirmative and against the revenue.

Final Conclusion: Hospitality expenses incurred under a business custom or obligation are not disallowable as entertainment expenditure under the provision considered.

Ratio Decidendi: Hospitality incurred in discharge of an express or implied business obligation, or pursuant to a long-standing trade custom, does not constitute entertainment expenditure.

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