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TMI Blog1987 (1) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... with the statements of accounts as on30-9-1979and 30-9J-1980 respectively. 3. During the course of process of assessment, the ITO notice that the assessee had debited to the profit and loss account for these two years an amount of Rs. 5,966.77 and Rs. 5,234.34 under the head 'Entertainment'. The ITO, therefore, considered this expenditure and invoking the provisions of section 37(2A) disallowed Rs. 966 for the assessment year 1980-81 and Rs. 234 for the assessment year 1981-82. This he did because according to him Rs. 5,000 were admissible to the assessee under the head 'Entertainment' within the ambit of section 37(2A). The assessments were made for these two years on26-11-1981and19-7-1982. These assessments were challenged in appeal before the learned Commissioner (Appeals). 4. The Commissioner (Appeals) insofar as the issue before us is concerned, observed that the assessee was not entitled to succeed before him because of the insertion of Explanation 2 to section 37(2A). According to the learned Commissioner, after the insertion of the Explanation by the Finance Act, 1983 retrospectively from1-4-1976, every kind of expenditure for the purpose of entertainment had to be disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of the expression entertainment expenditure' used in section 37(2A). One of the views taken by the Courts is that entertainment expenditure includes any expenditure incurred in connection with the business on the entertainment of customer in respect of provisions for petty refreshments like tea, cold drinks, cigarette, pan, etc. The other view propounded by the judicial authorities is that only that expenditure which is lavish or on extravagant scale can be considered as entertainment expenditure and expenditure incurred by an assessee in the ordinary course of business under obligation due to custom or usage of trade cannot be termed as 'entertainment expenditure' and disallowed as such. 8. It appears it was with this background of conflict of judicial opinion surrounding these provisions contained in section 37(2A) that the legislature in its legislative wisdom inserted Explanation 2 to the provisions of section 37 (2A) by the Finance Act, 1983, with retrospective effect from1-4-1976. This Explanation provides that for the removal of doubts, it is hereby declared that for the purpose of this sub-section and sub-section (2B), as it stood before 1-4-1977, 'entertainment expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that it is for the supply of tea and cola drinks to customers, cannot be described as expenditure in the nature of entertainment expenditure". We, therefore, find that in the case of the assessee where there is no expenditure of the type of tea or beverages, the mere cost of free tickets to the press and law enforcing agencies on a meager scale which does not exceed in any case Rs. 15 per film cannot be considered as entertainment expenditure falling within the ambit of section 37(2A) read with Explanation 2 ibid. The judgment relied upon by the revenue from the Hon'ble Delhi High Court in the case of Siddho Mal & Sons is not on the point at issue before us and as such, irrelevant. 11. On the entirety of the facts and circumstances of the case, therefore, in our considered opinion provisions of section 37(2A) are not applicable to the expenditure claimed by the assessee under the head 'Entertainment'. It is now well-settled that the nomenclature given to an expenditure in the books of the assessee does not per se determine its character for admissibility under the Act and all the surrounding circumstances have to be considered to determine its admissibility. When we do so, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be food for belly but music and songs are defiantly food for soul. Thus, in my view it is not correct to suggest that the expenditure was not incurred for entertainment. In this view of the matter the provision of section 37(2A) was aptly attracted. The disallowance and its confirmation were legally correct. The assessee's appeals in these circumstances lack merit and are dismissed accordingly. 4. In the result, the appeals are dismissed. Per Shri S.K. Chander, Accountant Member--The Members constituting Delhi Bench 'A' heard the above appeals and have differed in opinion on the points stated below: "Whether, on the facts and in the circumstances of the case, the provisions of section 37(2A) read with Explanation 2 of the Income-tax Act, 1961 are applicable to the amounts of Rs. 5,966 and Rs. 5,234 respectively incurred by the assessee for the assessment years 1980-81 and 1981-82 on the cost of free tickets issued to the press and others?" The case is, therefore, referred to the Hon'ble President of the Tribunal under section 255(4) of the Act for necessary action that the Hon'ble President may deem fit. THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, Senior Vice Presiden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not, therefore, go by the nomenclature of the head of the account but by the nature of the expenditure. It was thus submitted that the expenditure was allowable under section 37(1) and the expenditure was not covered by the provisions of section 37(2A). Reliance was placed upon the decision of the Delhi High Court in the case of Supreme Motors (P.) Ltd. On the other hand, the contention on behalf of the department was that in view of the ratio of the decision of the Delhi High Court in the case of Siddho Mal & Sons the expenditure was clearly disallowable and no case was made out by the assessee for the allowance of the expenditure. 4. The learned Accountant Member after analysing the purpose for which the tickets were issued free of cost held that the free tickets issued by the assessee to the members of the press was not to invite any particular individual for entertainment to see the film but it was a general opportunity provided to the press to come and witness the film so that its critical appreciation would influence the mind of the viewing public and, therefore, the cost of those free tickets could not be considered as entertainment expenditure even within the extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person witnessing the cinema, the press people also would come and witness the cinema and give their opinion in the press. While giving their opinion in the press, they are not at all influenced by the issuance of free tickets. They are free to express their opinion independently and objectively. When such is the case, the purpose of entertainment cannot be said to have been achieved because by entertainment the assessee must secure some benefit. In this case there cannot be any benefit unless the inherent strength of the film itself brings in the viewers. Similarly issuance of free tickets to the police departmental officials cannot be also said to be any entertainment because it is a matter of common knowledge, how important it is to maintain law and order in cinema halls and how it is absolutely essential to secure the goodwill of the police people. This is not to suggest that if free tickets would not issued, the police people will not come and perform their duties. But yet the issuance of free tickets does act as an incentive and further inducement and would convey to the audience such an impression that the police people were around and that would itself serve a warning to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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