1985 (5) TMI 51

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....978-79, respectively, incurred by the assessee on providing tea, coffee, soft drinks, etc., to the customers was not in the nature of entertainment expenditure within the meaning of section 37(2A) of the I.T. Act? " The assessee, Green Roadways, Udaipur, claimed sums of Rs. 62,222, Rs. 28,673 and Rs. 17,162, during the assessment years 1976-77, 1977-78 and 1978-79, respectively, as expenditure incurred by the assessee in providing tea, coffee, cold drinks, etc., to the customers. The aforesaid expenditure was claimed by the assessee to be a permissible deduction on the ground that it was obligatory in the trade of transport to provide such facilities to the customers in the interest of business promotion. According to the assessee, the e....

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....as in his view the expenditure allowed by the Tribunal was of the nature of entertainment expenditure, which was not allowable in view of the provisions of s. 37(2A) of the I.T. Act, 1961. On the application of the Commissioner, the Tribunal has referred the aforesaid question to this court for its opinion. Now, the question which requires to be determined in this reference is as to whether the expenditure incurred by an assessee in providing tea, coffee, soft drinks, etc., and giving parties to the customers and guests is of the nature of expenditure falling within the expression " laid out or expended wholly and exclusively for the purposes of the business of the assessee", occurring in s. 37(1) of the I.T. Act, 1961. After the inserti....

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.... 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. " This Explanation, which has been introduced with retrospective effect from April 1, 1976, leaves no doubt that the provision of hospitality of every kind by the assessee to any person except his employees, by providing food or beverages or in any other ....

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....tainment to guests and strangers ". In this manner, apart from the employees, if hospitality is provided by the assessee to any other person, including guests or customers, by providing tea, coffee, soft drinks, etc., the same would fall within the category of " entertainment expenditure " referred to in s. 37(2A) and no deduction can be allowed on this account from the income of the assessee. Learned counsel for the assessee then submitted that the deduction of expenditure claimed by the assessee for business promotion included expenses incurred by him in providing tea, coffee, soft drinks, etc., not only to the customers and guests, but also to the employees of the assessee and that a submission in this respect was made on behalf of th....