1980 (7) TMI 88 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenses incurred by the assessee on refreshments, lunch, liquor, etc., served at various meetings constitute entertainment expenditure u/s 37(2A) of the Income-tax Act, 1961.

Summary:

Issue 1: Nature of Expenditure as Entertainment Expenditure u/s 37(2A)
The primary question referred to the court was whether the expenses incurred by the assessee on refreshments, lunch, liquor, etc., served at the meetings of stewards, managing committee members, and other office bearers and officials, as well as general body meetings, constitute entertainment expenditure within the meaning of section 37(2A) of the Income-tax Act, 1961, for the assessment years 1968-69, 1969-70, and 1970-71.

The Income-tax Officer (ITO) considered the entire expenditure as entertainment expenditure and restricted the deduction as per s. 37(2A) of the Act. The Appellate Assistant Commissioner (AAC) partially agreed, treating expenditure on liquors and parties as entertainment expenditure but allowed other expenses as deductible under s. 37(1) of the Act. The Tribunal held that expenses incurred towards refreshments, lunch, including liquor served at business meetings, did not partake the character of entertainment expenditure, while other expenses did.

Arguments by Revenue:
The revenue contended that expenses on refreshments, lunch, liquor, etc., should be considered entertainment expenditure, relying on cases like Brij Raman Dass & Sons v. CIT, CIT v. Veeriah Reddiar, and CIT v. Kunji Lal Dhanpat Rai, where similar expenses were held to be entertainment expenditure.

Arguments by Assessee:
The assessee argued that the expenses were not entertainment expenditure as they were incurred during business meetings of stewards, managing committee members, and general body meetings. They relied on cases like CIT v. Corporation Bank Ltd., CIT v. Patel Brothers & Co. Ltd., and CIT v. Mysore Paper Mills Ltd., where similar expenses were not considered entertainment expenditure.

Court's Analysis:
The court examined the meaning of "entertainment" and concluded that for an expenditure to be considered entertainment, it must be for the purpose of deriving or providing pleasure. The court noted that the expenses in question were incurred during business meetings without any intention of extending entertainment to third parties or providing entertainment to the members. The expenses were necessary for holding business meetings and thus constituted administrative or business expenditure.

Conclusion:
The court endorsed the Tribunal's view and held that the expenses incurred on refreshments, lunch, liquor, etc., served at business meetings did not constitute entertainment expenditure. The question was answered in the affirmative, in favor of the assessee.