Commissioner of Income Tax vs New Bank of India Ltd.

B.N. Kirpal, J.—In respect of the assessment year 1974-75, the Income Tax Tribunal has referred, u/s 256(1) of the Income Tax Act, 1961, the following question of law to this court :

"Whether, on the facts and in the circumstance of the case, the Tribunal was correct in law in holding that expenditure incurred by the assessed on providing tea, cold drinks, etc., to the customers was not in the nature of entertainment expenditure and thereby upholding the Commissioner of Income Tax (Appeals) order reducing the disallowance of Rs. 1,50,075 to Rs. 27,000 made by the Income Tax Officer ?"

The facts as found by the Tribunal are as follows : The assessed is a public limited company carrying on the business of banking. The assessment year involved is 1974-75, for which the assessed''s accounting period was the calendar year 1973. In its books of account, the assessed debited a total amount of Rs. 2,45,700 by way of entertainment expenses. However, most of these expenses represented expenditure incurred by the assessed in providing light refreshments like tea, cold drinks, etc., to customers in the course of its business. The assessed itself added back an amount of Rs. 27,000 out of the said expenditure, while filing its return of income, as entertainment expenditure, which is not eligible for deduction in view of the provisions of section 37(2B). The Income Tax Officer, while completing the assessment, treated the expenditure incurred on customers as entertainment expenditure, whereas he allowed the expenditure incurred on the assessed ,own staff as business expenditure. In this view of the matter, he disallowed an amount of Rs. 1,50,075 representing such expenditure.

On appeal by the assessed, the Commissioner of Income Tax (Appeals) reduced the disallowance to the amount of Rs. 27,000 as computed and added back by the assessed, and allowed the assessed the consequential relief. Aggrieved by this order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Tribunal.

Following the decision of the Gujarat High Court in Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., and of the Bombay High Court in Commissioner of Income Tax, Vidarbha And Marathwada Vs. Shah Nanji Nagsi, and its own decision in the assessed''s own case for the assessment years 1971-72 and 1973-74, the Tribunal held that the Commissioner of Income Tax (Appeals) correctly allowed the assessed''s claim to deduct such expenditure incurred on customary courtesy extended to its customers, as not falling within the description of "entertainment expenditure" as contemplated in section 37(2B) of the Income Tax Act. Accordingly, the Revenue''s appeal on this point was dismissed.

At the instance of the Department, the aforesaid question law has been referred. It is not necessary to refer to the decisions of various High Courts where different views have been expressed because this court itself has in similar circumstances in the case of P. Ramachandra Reddiar and P. Arjuna Reddiar Vs. Commissioner of Income Tax, , decided on October 23, 1992), came to the conclusion that such expenses are not entertainment expenses. This conclusion was arrived at by following two earlier decisions of this court in Commissioner of Income Tax Vs. Supreme Motors (P.) Ltd., and Santlal Kashmirilal Vs. Commissioner of Income Tax, Delhi, .

In view of the aforesaid decisions, the question of law is answered in the affirmative and against the Department.