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TMI Blog2006 (8) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... brated with much fanfare and not only in the business circles but even in friend circles, gifts and sweets are distributed. This cannot in any way may be held to be an expenses in the nature of hospitality. We have examined the facts of the present case and keeping in view the nature of business, scale thereof, the amount of expenditure claimed on account of purchase of articles for distribution as gifts on festivals, cannot be held to be excessive or not being for business purposes. Accordingly, the first question raised by the Revenue is decided against the Revenue and in favour of the assessee and the appeal on that count is dismissed. Interest on the interest-free advance - As we have already held in Abhishek Industries' case [ 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] when the assessee itself was incurring liability to interest on the amount raised as loan, there was no justification for advancing interest-free loans to sister concerns for the purpose of business. Accordingly, following the same, the claim of interest on the amount of interest-free loan advanced to sister concerns for non-business purpose, as calculated in the assessment order, to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred as a matter of commercial expediency. The claim made by the assessee was rejected by the Assessing Officer on the ground that no proof was adduced to the effect that the items were distributed for the purpose of business. However, the same was ordered to be treated as entertainment expenditure to be dealt with under section 37(2A) of the Income-tax Act, 1961 (for short, the Act ). 3. Aggrieved against the order of assessment, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) (for short, the CIT (Appeals) ) who following his earlier order for the assessment year 1992- 93, wherein the expenditure on purchase of silver jewellery and Titan watches was held to be entertainment expenditure, upheld the disallowance made by the Assessing Officer. 4. In further appeal before the Tribunal, the assessee succeeded, where the Tribunal following its earlier order passed for the assessment year 1991-92, accepted the plea of the assessee. Though, neither much details nor the copies of the orders passed for the assessment year 1991-92 were placed on record. However, on the asking of the court copies thereof were made available. The relevant findings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of such expenditure does not exceed ten thousand rupees, the whole of such amount ; (b) in any other case, ten thousand rupees as increased by a sum equal to fifty per cent. of such expenditure in excess of ten thousand rupees. Explanation. For the purposes of this sub-section, ' entertainment expenditure' includes (i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person ; (ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred for the purposes of the business or profession of the assessee by any employee or other person ; (iii) expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been expressed by the Calcutta High Court in CIT v. Shalimar Industries P. Ltd. [1995] 78 Taxman 521 (Cal). 10. The contrary view has been expressed by the Rajasthan High Court in Modern Threads (India) Ltd. v. CIT [2002] 258 ITR 511 and in CIT v. Instrumentation Ltd. [2002] 258 ITR 513 (Raj), wherein it was held that the expenditure on distribution of gift articles constituted entertainment expenditure. Respectfully, we do not subscribe to the view expressed by the Rajasthan High Court in Modern Thread' s case [2002] 258 ITR 511 and Instrumentation Ltd.' s cases [2002] 258 ITR 513 and endorse the view taken by the Calcutta High Court in Shalimar Industries' case [1995] 78 Taxman 521 and hold that the expenditure of distribution of gifts on festival cannot be termed to be entertainment. However, it would be a question of fact to be pleaded and substantiated before the Assessing Officer that the kind of expenditure incurred on distribution of gifts was justified keeping in view the nature of business, turnover and other related factors. We have examined the facts of the present case and keeping in view the nature of business, scale thereof, the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised as loan, there was no justification for advancing interest-free loans to sister concerns for the purpose of business. Accordingly, following the judgment of this court in Abhishek Industries' case [2006] 286 ITR 1 the claim of interest on the amount of interest-free loan advanced to sister concerns for non-business purpose, as calculated in the assessment order, to the extent of Rs. 55,24,250 is disallowed and appeal to that extent is allowed and the order of the Tribunal is set aside. 15. Regarding question No. (iii) is concerned, at the time of filing of return the assessee claimed that a sum of Rs. 1,28,16,694 received by it as sales tax subsidy was a kind of revenue receipt. However, later on a revised return was filed, claiming the same to be a capital receipt which was disallowed by the Assessing Officer. Finally the Tribunal accepted the plea of the assessee and declared the same to be a capital receipt. 16. We have examined the nature of the receipt in the case of Abhishek Industries [2006] 286 ITR 1 (P H) where the same type of sales tax subsidy was involved and held that to be revenue in nature. Following the judgment, we hold that the sales tax subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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