TaxTMI 
TaxTMI 
TaxTMI 
1991 (3) TMI 215
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....before us. 2. Shri G. Narayanaswamy, the learned Chartered Accountant for the appellant placed before us a copy of the order of the Appellate Tribunal, Madras Bench-C in the case of Madras Loom House (P.) Ltd. v. ITO in IT Appeal No. 420 (Mad.) of 1986 dated 15-2-1991 and submitted that in the light of this decision of the Appellate Tribunal, the assessee is entitled to succeed in respect of its claim for deduction of the hotel expenses incurred by it towards the foreign customers who had come to transact business with the appellant in India. He also furnished before us complete details of the names of the foreign customers, their country of origin, date of their a rrival and departure from Madras and the hotel bill amounts paid by the appellant in respect of these foreign customers, as well as the export value of the goods sold to those customers. The learned Chartered Accountant submitted that according to the order of the Tribunal referred to above, only 1/10th of the hotel bill amounts should be disallowed for the entertainment part of the expenses and the balance would be admissible as business expenditure. On this basis, the learned Chartered Accountant submitted that the am....
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.... retrospective effect from 1-4-1976. He particularly laid emphasis on the following words in the Explanation, namely "entertainment expenditure" includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provisions of food or beverages or in any other manner whatsoever" and submitted that even hotel bills, which included the stay expenditure, such as room rent, would also be hit by this Explanation and that, therefore, the departmental authorities were justified in disallowing the assessee's claim. He further relied on the decision of the Patna High Court in the case of Chandmull Rajgarhia v. CIT [1987] 167 ITR 433 as well as the latest decision of the Punjab & Haryana High Court in Atlas Cycle Industries Ltd. v. CIT [1990] 181 ITR 18. Relying on these decisions, Shri Natarajan argued that the disallowance made by the departmental authorities should be upheld. [Emphasis supplied] 4. Shri G. Narayanaswamy, the learned Chartered Accountant for the assessee in his reply submitted that the decisions relied on by the learned departmental representative are not applicable to the facts of the present case, as it was not clear from the ....
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....for probable element of entertainment involved in this expenditure and allowed the balance as admissible deduction. 5. We have carefully examined the contentions urged on both sides in the light of the materials placed before us and the authorities relied on by them. 6. No doubt, the allowability of the expenditure in question has to be considered in the light of Explanation 2 to section 37(2A), which was inserted by the Finance Act of 1983 with retrospective effect from 1-4-1976. The said Explanation reads as follows :-- " Explanation 2 : For the removal of doubts, it is here by declared that for the purpose of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work." The argument on behalf of....
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....n 37(2A) has to be understood in the light of the tests laid down by their Lordships of the Madras High Court in the above decision. We are unable to agree with the learned departmental representative that the expenditure incurred by the appellant in the present case on the living expenses of its foreign customers as permitted by the Reserve Bank of India would fall within the mischief of this Explanation, as the expenditure included the expenses not only for providing food and beverages, but also room rent for the stay of foreign customers. It is this fact that has been taken note of by our learned Brothers when they examined this issue in the case of Madras Loom House (P.) Ltd. decided by the Appellate Tribunal, Madras Bench-C dated 15th February, 1991. In para 8 of the said order, the learned Members held as follows :-- " It is no doubt true, as canvassed by the learned counsel of the assessee that these expenses have been incurred to meet the living cost of foreign buyers. However, it was admitted on behalf of the assessee that there would be an entertainment component, however small embedded in these expenses. For example, in the statement filed before us, entertainment expen....