Commissioner of Income Tax vs Bhagwandass Manhar Lal

By The Court

The question referred for the opinion of this Court is as under :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the expenditure of Rs. 7,087 did not represent entertainment expenditure within the meaning of s. 37 of the IT Act, 1961 and, hence, had to be allowed as business expenditure for the asst. yr. 1972-73 ?"

The Tribunal relying upon the decision of Gujarat High Court in Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., held that the expenditure claimed by the assessed was not in the nature of ''entertainment expenditure'' and was an allowable deduction.

A Division Bench of this Court, of which one of us (D. K. Jain, J.) was a member in the case of Commissioner of Income Tax Vs. Rajasthan Mercantile Co. Ltd., India Tourism Development Corporation Ltd. and Gulshan Kumar Vijay Ku, has held that Expln. 2 to s. 37(2A) of the Act is not retrospective and is applicable only w.e.f. 1st April, 1976. This decision has been approved by the Supreme Court in CIT vs . Patel Bros. & Co. Ltd. : [1995]215ITR165(SC) , holding that the word "entertainment" must be construed strictly and not expansively and that the ordinary meaning of the word ''entertainment'' cannot include hospitality. The Supreme Court has further opined that the expenditure incurred in extending customary hospitality by offering meals as a bare necessity would not be "entertainment expenditure" without the aid of the enlarged meaning given to the words by Expln. 2 inserted w.e.f. 1st April, 1976. The said Explanation has been held to be prospective and not having retrospective application. The decision in Patel Bros. (supra) has also been affirmed.

In view of the aforesaid, since the assessment year in question is prior to 1st April, 1976, we answer the question in affirmative, in favor of the assessed and against the Revenue. No order as to costs.