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Issues involved: Interpretation of entertainment expenditure under section 37(2B) and admissibility of deduction under section 37(1) of the Income-tax Act, 1961 for assessment year 1976-77.
Summary: The case involved a company engaged in Cargo Surveyors and Analytical Chemists business, receiving fees for pre-shipment inspection and testing of jute goods. The company also received agency commission during the relevant year. The Income-tax Officer disallowed business promotion expenses of Rs. 9,487 incurred for a dinner party at Grand Hotel, Calcutta, where buyer's representatives and jute mill experts were invited for discussions related to quality control of jute goods, treating it as entertainment expenditure under section 37(2B). The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Appellate Tribunal ruled in favor of the company, allowing the expenditure under section 37(1) as it was for business promotion. The High Court, after considering the contentions, upheld the Tribunal's decision. It noted that the dinner party was held to discuss vital business issues related to the company's activities with foreign buyers and jute mill experts, emphasizing the promotion of business rather than social hospitality. The Court clarified that hospitality for business promotion purposes, even if involving elements of social hospitality, should not be disqualified as entertainment expenditure. Therefore, the expenditure in question was deemed not to fall under the category of entertainment expenditure as per section 37(2B) of the Income-tax Act, 1961. In conclusion, the High Court answered the reference question in the affirmative, favoring the assessee and ruling against the Revenue. No costs were awarded in this matter.
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