1985 (4) TMI 35 - HC - Income Tax

Summary

Issues:
1. Whether messing expenses incurred for providing meals to directors and expenses on tea, cold drinks, etc., are business expenditure or entertainment expenses under section 37(2B) of the Income-tax Act for the assessment year 1972-73?

Analysis:
The case involved the determination of whether certain expenses claimed by the assessee for the assessment year 1972-73 were business expenditure or entertainment expenses under section 37(2B) of the Income-tax Act. The Tribunal referred two questions to the High Court regarding the nature of the expenses incurred by the assessee. The first question pertained to messing expenses of directors, and the second question related to expenses on tea, cold drinks, etc., provided to customers and guests, including the Chief Minister and Industries Minister.

The assessee claimed various expenses, including messing expenses of directors, welcoming expenses for dignitaries, and costs for providing refreshments to customers and guests. The Income-tax Officer disallowed these expenses as entertainment expenses under section 37(2B) of the Act. The Appellate Assistant Commissioner partially allowed the expenses, distinguishing between entertainment and business expenses. The Tribunal further reviewed the expenses and concluded that most of the expenses were not entertainment expenses, except for a specific hotel bill payment.

In previous cases, the High Court had ruled that messing expenses and expenses on tea, etc., were not entertainment expenses under section 37(2B) of the Act. The High Court considered various precedents and decided to follow the interpretation that such expenses were legitimate business expenditures and not subject to disallowance under the entertainment expenses provision.

Ultimately, the High Court upheld the Tribunal's decision, ruling in favor of the assessee. It held that the messing expenses for providing meals to directors and expenses on tea, cold drinks, etc., were business expenditures legitimately incurred in the course of carrying on the business. Therefore, these expenses were not considered entertainment expenses under section 37(2B) of the Income-tax Act for the assessment year 1972-73. The High Court answered both questions in the affirmative, favoring the assessee and against the Revenue, with no order as to costs.