Commissioner of Income Tax vs Jaipur Golden Transport

At the instance of the Revenue , in respect of the assessment year 1974-75, the following common questions have been referred for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure of Rs. 14,575 was not of the nature of entertainment expenditure ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting Rs. 10,957 out of fines and penalties ?"

The answer to question No. 1 stands concluded by the decision of the Supreme Court in CIT v. Patel Brothers and Co. Ltd. : [1995]215ITR165(SC) , approving the view taken by this court in Delhi Cloth and General Mills Co. Ltd. Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. Rajasthan Mercantile Co. Ltd., India Tourism Development Corporation Ltd. and Gulshan Kumar Vijay Ku, , where it was held that expenditure incurred on extending customary hospitality by offering ordinary meals as a bare necessity, would not be "entertainment expenditure" without the aid of the enlarged meaning given to the words by Explanation 2 (to section 37(2A) of the Income Tax Act, 1961) inserted with effect from April 1, 1976. In this view, question No. 1 is answered in the affirmative in favor of the assessed and against the Revenue.

In Haji Aziz and Abdul Shakoor Bros. Vs. The Commissioner of Income Tax, Bombay City II, , the Supreme Court has held that no expense which was paid by way of penalty for a breach of the law, even though it might involve no personal liability, could be said to be an amount wholly or exclusively laid out for the purpose of the business of the assessed within the meaning of section 10(2)(xv) of the Indian Income Tax Act, 1922, and the fine paid by the assessed was not an allowable deduction under that section. Section 37 of the Income Tax Act, 1961, corresponds to section 10(2)(xv) of the 1922 Act. In this view, the opinion of the Tribunal that the fines in respect of municipal petty traffic offences cannot be held to be penalty within the term of infringement of law, cannot be sustained.

Accordingly, question No. 2 is answered in the negative in favor of the Revenue and against the assessee. No costs.