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Issues:
1. Allowability of expenses incurred for providing meals and snacks to customers as entertainment expenses. 2. Allowability of expenses incurred for obtaining survey and feasibility report of a polythene plant as business expenditure. 3. Allowability of surtax liability as a business expenditure. Analysis: Issue 1: The first issue pertains to whether the expenses incurred by the assessee in providing meals, breakfast, and tea to customers and suppliers should be considered entertainment expenses and disallowed under section 37(2B) of the Income-tax Act, 1961. The High Court referred to a previous decision where a similar question was answered in favor of the assessee. Therefore, the Court held that the expenses incurred for providing snacks were allowable deductions in favor of the assessee. Issue 2: The second issue revolves around the deduction claim of Rs. 90,000 spent by the assessee on obtaining a survey and feasibility report for a polythene plant that was not eventually set up due to rejection by the authorities. The assessee argued that the expenditure was incurred wholly and exclusively for the existing textile business as the plant was meant to manufacture packing material for the products. However, the lower authorities disallowed the claim. The High Court noted that the necessary facts to determine the allowability of this expenditure were not established by the lower authorities. The Court emphasized the need to apply the test laid down by the Supreme Court to ascertain if the proposed polythene plant was interconnected with the existing business. As the facts were not adequately determined, the Court held that this issue could not be answered at that stage and required further examination by the Tribunal. Issue 3: The final issue concerns the allowability of surtax liability as a business expenditure. The Tribunal had held that surtax liability was not an allowable deduction. The High Court upheld the Tribunal's decision, stating that the surtax liability did not qualify as an expenditure wholly and exclusively incurred for the business purposes of the assessee. Therefore, the Court answered this question in favor of the revenue and against the assessee. In conclusion, the High Court ruled in favor of the assessee regarding the expenses incurred for providing snacks, while the issue regarding the feasibility report for the polythene plant was remanded to the Tribunal for further examination. The Court upheld the disallowance of surtax liability as a business expenditure.
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