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TMI Blog1986 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the controversy raised therein is covered by the two decisions of this court in CIT v. Pioneer Trading Company Private Ltd. [1968] 70 ITR 347 and CIT v. Ramjeewan Sarawgee Sons [1977] 107 ITR 845. The decision of this court in Pioneer Trading Co. (P) Ltd. [1968] 70 ITR 347 has been approved by the Supreme Court subsequently in CIT v. Shantilal (P) Ltd. [1983] 144 ITR 57. In view of the aforesaid, we answer question No. 2 in the affirmative and in favour of the assessee. The facts relating to question No. 1 are, inter alia, that the Agarpara Co. Ltd., the assessee, was assessed to income-tax in the assessment year 1972-73, the accounting year ending on March 31, 1972. After the assessment was completed, the Commissioner of Income-tax, West Bengal-V, initiated proceedings under section 263 of the Income-tax Act, 1961. The Commissioner noted that in the said assessment year, the assessee had spent Rs. 53,487 on cigarettes and other items supplied to its customers and claimed deduction of the same under the head " general charges ". The said claim was allowed by the Income-tax Officer in computing the total income of the assessee. It appeared to the Commissioner that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the view taken by the Gujarat High Court. Learned advocate relied on and cited the following decisions: (a) Brij Raman Dass Sons v. CIT [1976] 104 ITR 541 (All): In this case, expenditure had been incurred by the assessee for providing tea, lassi and other refreshments to its customers and a deduction of such expenditure was claimed. A Division Bench of the Allahabad High Court considered the meaning of the word " entertainment " from Stroud's judicial Dictionary in connection with the Refreshment Houses Act, 1960, and found that entertainment would include provision of food, drinks and other items reasonably required for personal comfort of the guests. It was held that entertainment expenditure would include expenditure incurred in connection with the business of the assessee for the entertainment of its customers and constituents and such entertainment might consist of providing refreshments as also other forms of entertainments. It was held that the provision of refreshments to the customers by the assessee resulted in an expenditure in the nature of entertainment expenditure and came within the mischief of section 37(2A) of the Income-tax Act, 1961. (b) CIT v. Veeria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding provisions in English law and came to, the conclusion that it was the intention of the Legislature to disallow all expenditure in the nature of entertainment expenditure. The court also took note of the expression " in the nature of entertainment expenditure " and held that the said expression was wide enough to include all types of expenditure incurred on hospitality. It was held that the judgment of the Gujarat High Court and to other High Courts which had taken a contrary view did not consider the effect and the meaning of the wide expression. It was held that there was no reason to make a distinction between entertainment and hospitality in the manner in which it was done by the Gujarat High Court and to come to a conclusion that only where the hospitality was lavish or extravagant, the same could be held to be entertainment. It was observed that this distinction would make the application of the law difficult in individual cases. The court, however, noted that there may be cases where certain facilities like providing customers with drinking water would neither be entertainment nor hospitality and such cases might be excluded from the mischief of section 37(2B) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity " from a number of dictionaries and came to the conclusion that every act of entertainment included hospitality but every hospitality did not constitute entertainment. It was held that hospitality shown on account of business obligations arising as result of express or implied contract or out of long-standing custom of trade, business or profession did not amount to entertainment and such hospitality could not be included in and covered by the term " entertainment". The Gujarat High Court dissented from the view taken by the Allahabad High Court in Brij Raman Dass Sons' case [1976] 104 ITR 541 and held that if food or drinks were provided to a client, constituent or customer and was in the nature of bare necessity, or by way of ordinary courtesy, or an express or implied term of a contract of employment spelt out from long-standing custom, it would not amount to entertainment. But provision of food or drinks to a client, customer or constituent on a lavish or extravagant scale would be an entertainment per se. Provision of food or drinks to a client, customer or constituent in a liberal and friendly way might amount to entertainment. (b) CIT v. Shah Nanji Nagsi [1979] 116 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a small expenditure was incurred by the assessee for supplying tea and could drinks to its customers, the same could not be held to be in the nature of entertainment expenditure. It was observed that it was a matter of degree and should not be stretched to the extent of disallowing petty claims. (g) Santlal Kashmirilal v. CIT [1986] 157 ITR 422. In this case, another Division Bench of the Delhi High Court held that expenditure incurred by the assessee, carrying on the business of arhtias in foodgrains in Delhi, in supplying customary items of refreshment to its trade constituents, was a customary expenditure and was incurred as a part of the business operation and the same would be allowable as a deduction. The Division Bench took note of Explanation 2 which was introduced in section 37(2A) of the Income-tax Act, 1961, by the Finance Act, 1983, with retrospective effect from April 1, 1976. The said Explanation reads as follows : " 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 hospitali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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