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TMI Blog1996 (7) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case, and having regard to the provisions of section 2(18)(b) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that the assessee should be treated as a company in which the public are substantially interested ? (ii) " Whether the Appellate Tribunal's view that since the assessee is a public company under section 43A of the Companies Act, 1956, the assessee should be treated as a company in which the public are substantially interested under section 2(18)(b) of the Income-tax Act, 1961, is sustainable in law ? (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the weighted deduction under section 35B should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company in which the public are substantially interested for the reason that it satisfied all the conditions mentioned in section 2(18)(b)(B) of the Income-tax Act. The Income-tax Officer held that the first condition to be satisfied was that the company was not a private company as defined in section 3(1)(iii) of the Companies Act, 1956, and the essential ingredients being present in the articles of association, the assessee-company was a private company. According to the Income-tax Officer, when once the prior condition under section 2(18)(b) of the Act was not satisfied, it was needless to look into the question whether all the other conditions mentioned in section 2(18)(b)(B) of the Act were satisfied at all. Therefore, the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation providing for free transferability of shares, and on his findings, only 43.39 per cent. of the voting power was held by three companies of the Sundaram group, held that the assessee-company was one in which the public were substantially interested. Consequently, he directed the Inspecting Assistant Commissioner to make necessary changes by treating the assessee as a company in which the public are substantially interested. He has also deleted the disallowance of Rs. 2,09,269 holding that it is not an entertainment expenditure. On appeal by the Revenue, the Tribunal upheld the orders of the Commissioner of Income-tax (Appeals) as his decision was in accordance with the decisions of the Tribunal in the assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal was not correct in holding that the assessee is a company in which the public are substantially interested and, therefore, the assessee is entitled to weighted deduction under section 35B of the Act at the rate of 1 1/2 per cent. In that view of the matter, we answer the first three questions preferred in the assessment year 1979-80 and all the questions relating to the assessment year 1975-76 in the negative and in favour of the Department. So far as the fourth question is concerned, it relates to the assessment year 1979-80. The point for consideration is whether the entertainment expenditure of Rs. 2,09,269 is allowable as deduction under section 37(2A) of the Income-tax Act, 1961. The Income-tax Officer disallowed a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nteen run by the assessee-company. The cigarettes are also supplied to the customers who are in the habit of smoking. These expenses, therefore, are not strictly in the nature of advertisement expenditure and would qualify as deduction in view of the decision of the Madras High Court in the case of CIT v. Karuppuswamy Nadar and Sons [1979] 120 ITR 140. In the result, the entire expenditure of Rs. 2,09,269 disallowed by the Inspecting Assistant Commissioner was allowed as deduction by the Commissioner of Income-tax. On appeal, the Appellate Tribunal confirmed the order passed by the Commissioner of Income-tax. Before us, learned counsel appearing for the assessee submitted that the incidental expenditure like tips, etc., and the photos wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the category of entertainment expenditure. Therefore, we are agreeable with the Tribunal in allowing these two expenditures, namely, incidental expenditure like tips, etc., of Rs. 16,580 and the expenditure for photographs amounting to Rs. 6,959 that they are not entertainment expenditure and, therefore, they are allowed under section 37(1) of the Act since they are incurred wholly and exclusively for the purpose of business. In so far as the other two items like guest house and mess account and cigarettes for customers are concerned, they definitely fall under the category of entertainment expenditure. If the expenditure is incurred not on the staff of the assessee-company, but on the customers, it will have to be treated as entertainment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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