Business hospitality to customers was not entertainment expenditure and remained deductible as ordinary business expense.

Coffee and tea served by a banking company to customers during business hours, as a matter of courtesy and without any formal host-guest relationship or reception, were held not to be entertainment expenditure within section 37(2B) of the Income-tax Act. The court read "entertainment" in its ordinary sense and in the context of the provision, finding that modest hospitality incidental to carrying on banking business fell outside the statutory prohibition. The expenditure was therefore allowable as business expenditure under section 37(1), in favour of the assessee.

---

---

Issues: Whether the expenditure incurred by a banking company on serving coffee and tea to customers during business hours constituted entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961, or was allowable as business expenditure under section 37(1).

Analysis: The term "entertainment" was not defined in the Act and had therefore to be understood in its ordinary sense and in the context of section 37(2B). Coffee and tea were served to customers in the course of business, during business hours, as a matter of courtesy, without any formal relationship of host and guest or any reception or entertainment party. The expenditure was modest and was incurred as an incident of carrying on banking business, rather than as ostentatious hospitality targeted by the statutory prohibition.

Conclusion: The expenditure did not amount to entertainment expenditure under section 37(2B) and was allowable as business expenditure under section 37(1); the question was answered in the affirmative, against the revenue and in favour of the assessee.

---