1996 (10) TMI 51

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..... the case, the Tribunal was right in law in coming to the conclusion that the sum of Rs. 19,153 incurred by the assessee for supplying tea, coffee, etc., were not in the nature of entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act, 1961 ? " Question No. 1 is referred to us at the instance of the assessee while question No. 2 is referred to us at the instance of the Commissioner of Income-tax. The assessee made a claim for deduction of interest paid for delayed payment of tax which came to the disallowed by the Commissioner of Income-tax (Appeals) and confirmed by the Income-tax Appellate Tribunal. The assessee also made a claim for deduction against expenses incurred for supply of tea, coffee, etc., by .....

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..... the character of the original liability and is allowable. So also is the interest paid on the late payment of excise duty or contribution to the provident fund. In each case, the amount paid towards the excise duty or contribution to the provident fund are the expenses allowable to be deducted from the gross profit and, therefore, any amount paid for compensation on delayed payment to the recipient also becomes allowable under section 37(1) of the Act. However, in the present case, the interest is payable on the personal liability of the assessee of the income-tax which is a direct tax and is not a part of the business expenditure. In this connection, it may further be noticed that interest on money borrowed for the payment of the tax was .....

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..... i.e., in favour of the Revenue. So far as the second question is concerned, the same is also covered by the judgment of the Supreme Court in the case of CIT v. Patel Bros and Co. Ltd. [1995] 215 ITR 165. There the Supreme Court has held that the entertainment expenses incurred to meet the bare necessity of the employees are concerned, the assessee is entitled to deduction thereof. So far as such entertainment expenditure is incurred for persons other than employees, the assessee is not entitled to deduction thereof as it cannot be entertainment expenditure within the meaning of section 37(2B) of the Income-tax Act. In view of this settled legal position, question No. 2 is required to be referred back to the Tribunal who shall decide the .....

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