COMMISSIONER OF INCOME TAX vs JADHAVJI KANJI and CO.

G. P. Singh, C.J. - This is a reference u/s 256 (1) of the IT Act, 1961 referring for our answer the following questions of law :

Asst. Yr. 1975-76 :

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that expenses of Rs. 11,697 are not in the nature of entertainment expenditure u/s 37(2B) in view of conflicting decisions of the various High Courts and there being no direct decision by the Madhya Pradesh High Court ?

(2) Whether on the facts and in the circumstances of the case the Tribunal was justified in quashing the order u/s 263 ?

Asst. Yr. 1976-77 :

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that expenses of Rs. 17,839 are not in the nature of entertainment expenditure u/s 37(2B) in view of conflicting decisions of the various High Courts and there being no direct decision by the Madhya Pradesh High Court ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the order u/s 263 ?

The reference relates to the asst. yrs. 1975-76 and 1976-77. The expenses of Rs. 11,697 in the year 1975-76 and 1976-77. The expenses of Rs. 11,697 in the year 1975-76 and Rs. 17,839 in the year 1976-77 were incurred in providing meals to whole-time employees and cotton customers of the assessee. Such an expenditure would not fall under the head entertainment expenditure u/s 37(2B). This has been held by this court in CIT v. Lakhmichand Muchhal (1982) 134 ITR 234 . This decision has been further followed in Commissioner of Income Tax Vs. Lalubhai B. Patel and Co., The CIT, M.P. - II, Bhopal v. M/s. Kanhaiyalal Santosh Kumar, Raipur decided on 8-2-1982 and M.C.C. No. 180 of 1977, The CIT, M.P. - 1. Bhopal v.M/s. Ramprasad Hazarilal Bhopal decided on 28-4-1982. Following these decisions it has to be held that the Tribunal was justified in holding that the aforesaid expenses were not in the nature of entertainment expenditure u/s 37(2B). The second question though in general terms in consequential to question No. 1 as has been made clear in the statement of the case. In view of the answer to question No. 1 in favour of the assessee, question No. 2 has also to be answered in favour of the assessee.

For the reasons given above, we answer both the questions for both the years in favour of the assessee and against the department. The assessee will get its costs of this reference. Counsels fees Rs. 200.