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TMI Blog1996 (7) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the deduction allowed in respect of entertainment expenditure to the extent of Rs. 29,040 ?" After hearing the arguments of both sides, we are of the view, the question needs to be recast and we reframe the same as under : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in upholding the deduction allowed in respect of expenditure to the extent of Rs. 29,040 ?" It may be necessary to note the facts giving rise to this question. The respondent-assessee is a public limited company registered under the Companies Act. In the assessment year 1976-77, it incurred an expenditure of Rs. 30,040 for providing tea, coffee, etc., to the customers, staff and technicians and claimed the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Explanation 2. --- For the removal of doubts, it is hereby declared that for the purposes of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes 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 work. " On a perusal of the Explanation it becomes clear that "entertainment expenditure" would now includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly or exclusively for the purposes of the business or profession shall be allowed but no expenditure in the nature of entertainment expenditure shall be allowed as stated in sub-sections (2) and (2A) in excess of the amount specified. For claiming deduction of the business expenditure according to the general rule, the test of commercial expediency is applied but exclusion is made of any expenditure which is in the nature of 'entertainment expenditure'. Without anything more, it means that an expenditure incurred for commercial expediency or usage of the trade is a permissible deduction unless it partakes of the character of an entertainment expenditure, in which case the permissible limit is specified . . . " Then the question arises, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1976-77, therefore, the Explanation will be attracted and the expenditure on "hospitality" will be within the meaning of "entertainment expenditure" and, therefore, it will not be an allowable deduction. It has already been noticed above that the expenditure on food or beverages provided by the assessee to his employees in office, factory, etc., will not fall even within the enlarged meaning of the expression "entertainment expenditure" given by the said Explanation 2. In the instant case, however, the expenditure was incurred for providing tea, coffee, etc., to the customers, staff and technicians. From the above it is clear that partly the expenditure on the hospitality was incurred on the customers and partly on the employees. That ..... X X X X Extracts X X X X X X X X Extracts X X X X
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