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TMI Blog1989 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer by the assessee are as follows : (1) Refreshment served to- Rs. (a) Stewards, secretary and others including donors of cups and certain VIPs. 83,518 (b) Permanent and race day officials 19,488 (c) Permanent and race day officials other than officials. 34,300 (2) Morning tea to officials attending to track work in the morning and trainers and jockeys exercising the horses. 13,260 (3) Refreshments served on the occasion of the Turf Invitation Cup Race held on 6th March, 1971. 7,300 (4) Expenditure on annual party thrown to owners, trained jockeys, book-makers, club-makers, police officers and other persons connected with racing 8,699 ----------------- 1,66,585 ----------------- On an exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc. He further disallowed Rs. 69,230 on the ground that it represented expenditure on hot and soft drinks and tobacco served to stewards, their friends and guests. Out of Rs. 19,458 claimed by the assessee as refreshment served to permanent and race day officials" the Income-tax Officer disallowed on estimate Rs. 7,600 on the ground that it represented expenditure on officials of the turf club, unconnected with the business. In this way, he disallowed the deduction claimed by the assessee to the extent of Rs. 97,319 and allowed the same to the extent of Rs. 69,266. On appeal, the Appellate Assistant Commissioner held that the disallowance of the expenses made by the Income-tax Officer was not based on accurate estimate. He, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice of snacks, tea, etc., to the employees on the race days is, in our opinion, quite necessary in order to enable those employees to put forth their best efforts in making all the arrangements to ensure the smooth conduct of the race. But we do not think that the expenditure on hot drinks served to the stewards, secretary, donors of cups, other VIPs and officials of the race club can be regarded as an expenditure wholly and exclusively laid out for the purpose of the business. Out of the expenditure (Rs. 83,518 and Rs. 19,458) claimed by the assessee in this regard, the Income-tax Officer disallowed Rs. 76,320 and the Appellate Assistant Commissioner sustained this disallowance to the extent of Rs. 70,000. On a consideration of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food and drinks to customers is in the nature of bare necessity, or by way of ordinary courtesy, or as an express or implied term of the contract of employment spelt out from long-standing practice or custom of trade or business, it will not amount to entertainment. The court also held that only such expenses would come within the ambit of entertainment expenditure which are on a lavish or extravagant scale or wasteful in nature. Reliance has also been placed on the decision made in the case of Addl. CIT v. Bangalore Turf Club Ltd. [1980] 126 ITR 430 (Kar). The question which calls for determination is whether the expenditure on hot drinks served on race days to stewards, secretary, donors of cups, other VIPs and officials of the club c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings of the stewards and during the official business meetings of the managing committee and office-bearers or in the general body meeting of the members of the club which were also business meetings would be in the nature of administrative and business expenditure and would have no taint of expenditure in the nature of entertainment. It is now well-settled that the true test of an expenditure laid out wholly and exclusively for the purposes of the trade or business is that it is incurred by the assessee as incidental to his trade for the purposes of keeping the trade going and of making it pay and not in any capacity other than that of a trade. In view of the admitted position that serving of hot drinks to stewards, etc., by the race ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of the principles of commercial trading. The question must be reviewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure." The Revenue contended, relying on the decision of the Patna High Court in Chandmull Rajgarhia v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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