Business-related customer messing expenses were treated as allowable, not entertainment expenditure, on the facts of the commission business.

Messing expenses incurred for customers in the course of a dalali business were examined for treatment as entertainment expenditure under section 37(2B) of the Income-tax Act, 1961. The assessee contended that the outlay represented customary business-related spending in a commission business involving cotton, hundi and house property dealings. On the stated facts, the Tribunal noted the business needs of contacting different persons, the limited size of the claim relative to commission income, and the reasonable business nexus of the expenditure. The claim was held allowable in full and the disallowance was deleted.

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Issues: Whether messing expenses incurred for customers in the course of dalali business were to be treated as entertainment expenses and disallowed under section 37(2B) of the Income-tax Act, 1961.

Analysis: The assessee carried on commission business in cotton, hundi and house property and claimed that the expenditure was incurred for meeting customary messing expenses of customers. The lower authorities treated the outlay as entertainment expenditure, but the Tribunal noted the nature of the business, the need to contact different persons for transactions, and the comparatively small amount of the claim vis-a -vis the commission income earned. On those facts, the expenditure was found to be within reasonable limits and attributable to the business.

Conclusion: The claim was held allowable in full and the disallowance was deleted.

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