1993 (6) TMI 24 - HC - Income Tax

Entertainment Expenditure, Expenditure On Annual Day Celebration, Refreshments To Members And Customers

Summary

Issues:
- Failure of the Tribunal to make separate references for three orders passed in three separate appeals.
- Allowability of expenditure incurred in connection with annual day celebrations as a business expenditure.
- Deductibility of guest entertainment expenses for serving tea, snacks, and food to members, customers, and visitors.
- Treatment of expenditure for providing tea, snacks, and food as deductible business expenditure.

Analysis:
The High Court of GUJARAT addressed the issue of the Tribunal's failure to make separate references for three orders passed in three separate appeals. The Court directed the office to register the common reference as three separate references for the assessment years 1969-70, 1971-72, and 1972-73. This decision was made to ensure the proper categorization of the references according to the respective assessment years.

Regarding the allowability of expenditure incurred in connection with annual day celebrations as a business expenditure, the Court referred to previous decisions. The Court cited the Full Bench decision in Karjan Co-operative Cotton Sales Ginning and Pressing Society v. CIT, emphasizing that expenditure incurred for the preservation and betterment of business prospects is deductible as business expenditure. Following this precedent, the Court held that such expenditure is allowable as a business expense.

The Court then analyzed the deductibility of guest entertainment expenses for serving tea, snacks, and food to members, customers, and visitors. The Tribunal found that these expenses were not related to maintaining a guest house but were incurred for business purposes. The Court agreed with the Tribunal's factual finding and held that these expenses were deductible as business expenditure, not entertainment expenditure.

Lastly, the Court considered the treatment of expenditure for providing tea, snacks, and food as deductible business expenditure. The Tribunal's findings indicated that this expenditure was also for business purposes, not entertainment. Therefore, the Court affirmed that this expenditure was rightly treated as deductible business expenditure. Consequently, both questions were answered in the affirmative, against the Revenue and in favor of the assessee. No costs were awarded in the judgment.