TaxTMI 
TaxTMI 
2003 (1) TMI 44
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....owance of interest on borrowed capital in the amount of Rs. 3,05,444?" The first question: The first question is whether the expenditure on food and drinks provided to the employees and to the customers in the course of the seminar for sales promotion held in the previous year 1989-90 was admissible for deduction as business expenditure or an expenditure for entertainment disallowable under section 37(2A) of the said Act, as applicable to the assessment year 1990-91. The assessee has not claimed the amounts spent on food and drinks supplied to persons other than the employees under this head. It has claimed the expenses for the seminar and the food and drinks supplied to the employees. Sub-section (2A) of section 37 prescribes that no allowance shall be made, notwithstanding anything contained in sub-section (1) or sub-section (2) of section 37, in respect of so much of the expenditure in the nature of entertainment expenditure incurred by the assessee in respect of the matters specified. Explanation 2 was subsequently added with effect from April 1, 1976, for the removal of doubts in the form of a declaration in respect of sub-section (2A) and sub-section (2B). In the sai....
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....m, if such an interpretation is to be given, in that event, we are required to read something the Legislature has not expressly included. The court cannot interpret a provision of a statute, which would amount to adding something to the statute, a proposition otherwise impermissible. The question appears to be very simple. We are not concerned with the distinction of hospitality or entertainment as was sought to be drawn by Mr. Khaitan in the present case. Since the facts do not pose or involve any such question as soon the assessee confines its claims for the expenditure incurred on food and beverages provided to the employees of the assessee and not the expenses incurred on food and beverages for the customers or other persons. So far as the expenses of seminar for business promotion is concerned, the same is definitely a business expenditure, if it is aimed at or necessary for increasing the skill of the salesmen for promotion of sale. Therefore, that part of the expenses does not pose any difficulty for our present purpose. Such an exercise for sales promotion would definitely be a business expense. The food and drinks supplied to the employees is excepted from the wid....
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....tertainment expenditure within the meaning of Explanation 2 to section 37(2A). But the portion spent for the employees is not an entertainment expenditure and, therefore, is not disallowable. Having regard to such a proposition, in our view, the exception is unqualified and it is available where it is given regularly or sporadically or on any particular occasion without attracting the distinction of hospitality or entertainment, if provided in office, factory or other place of their work. Therefore, food and drinks provided to the employees in the course of a seminar is an expense which the assessee is entitled to exclude from entertainment expenditure as explained in Explanation 2. Now let us examine the implication of the phrase "other place of their work". We are unable to accept the proposition as advanced by learned counsel for the respondent that this phrase indicates place of work other than office or factory to mean normal place of the work where the employees work regularly or normally. The answer is simple. If an employee is deputed for the purpose of doing some work at some place outside office or factory and if the employee is to work there, wherever he will be do....
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....re given in Explanation 2. In relation to customers having regard to the decision in Patel Brothers' case [1995] 215 ITR 165 (SC), ordinary meals being a bare necessity, if provided to outstation customers, can well be within the meaning given by the apex court. The Gujarat High Court in CIT v. Central India Builders [1985] 156 ITR 453 held that messing expenses incurred for employees are not entertainment expenditure. The Rajasthan High Court in CIT v. Anjani Kumar and Co. (P) Ltd. [1997] 227 ITR 786, 789-90 held that the expenditure for providing tea and coffee to the factory workers in the factory is outside the purview of Explanation 2. This proposition is apparent on the face of the expressions employed in Explanation 2 itself while excepting the expenses incurred for food and drinks provided to the employees at the office, factory or other places of their work. In CIT v. Orient Paper Mills Ltd. [1988] 171 ITR 181 (Cal), this court had held that the expenditure incurred for supply of tea and refreshment at the conference of its salesmen and distributing agents was an expenditure in the nature of hospitality and not entertainment expenditure. In CIT v. Expo Machinery Ltd. [1991....
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.... said land was continuing right from the previous year. However, the execution of the deed took place after the closing of the previous year. But pursuant to such negotiation the advances were placed at the disposal of the sister concern. The balance advance so made after adjusting the amount against the supplies were adjusted against the interest-free security deposit and the interest-free advance payment of rent. Therefore, it is allowable for the previous year. Learned counsel for the respondent, on the other hand, contends that there is nothing to prove that negotiation was continuing. He further points out that this amount was adjusted after the close of the previous year. The date of such adjustment shall be the date on which the expenses were incurred. Making of the advance and that too interest-free would not be a business expense from the borrowed capital. Therefore, the interest paid on the said amount cannot come within the scope and ambit of section 36(1)(iii). Doubt may be raised that interest-free security deposit or advance rent may not be an expenditure for acquiring a fixed asset. But then the question has to be looked into as to whether the advance paid was ....
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....o be allowable under this section in Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All). In Addl. CIT v. Aniline Dyestuffs and Pharmaceutical (P) Ltd. [1982] 138 ITR 843 (Bom), it was held that where new the project set up by the assessee was not totally independent of the existing business, interest paid on the loan for such new project was to be allowed as deduction. In CIT v. Granulated Fertilizers and Feeds (P) Ltd. [1982] 137 ITR 400 (Guj), it was held that interest paid on money borrowed to acquire a fixed asset is revenue expenditure and allowable under this provision. We had occasion to discuss in detail similar question in Tetron Commercial Ltd. v. CIT (I.T.A. No. 78 of 1999, disposed of by us on January 15, 2003--[2003] 261 ITR 422 (Cal)), with reference to various decisions on the question. In the said decision, we had held: "Whether the deduction under section 36(1)(iii) is available or not is dependent on the question whether the capital borrowed is for the purpose Of the business of the assessee. If it is found that the capital was borrowed for the purpose of the business of the assessee, the interest payable thereon, is admissible under the sai....