Pratap Cotton Trading Co. vs Commissioner of Income Tax

As a result of the directions given by this court u/s 256(2) of the Income Tax Act, 1961, the Tribunal has stated the case and referred to this court for its decision, the following question of law, namely :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the mussing expenses incurred for supply of bare meals to the customers and constituents is entertainment expenditure and is not allowable u/s 37(2B) of the Income Tax Act, 1961 ?"

The material facts are these. The relevant assessment years are 1975-76 and 1976-77. The assessee is a partnership concern carrying on the business of commission agents. It deals in cotton. The question for decision is whether the expenditure incurred by the assessee in the supply of bare meals to its customers and constituents is an allowable expenditure u/s 37(2B) of the Income Tax Act, 1961. The assessee claimed deduction under this head for both the assessment years. The Tribunal allowed part of the deduction claimed. Aggrieved by the partial disallowance of the expenditure to this extent, the assessee applied to the Tribunal for a reference u/s 256(1) of the Income Tax Act, which -was refused. Accordingly, the assessee filed an application in this court u/s 256(2) of the Act in which a direction was given, resulting in the aforesaid question being referred to this court for its decision.

In respect of the same assessee and on the same facts, a prior reference relating to some other assessment years was decided in the assessee''s favour, holding that the whole of this expenditure has to be allowed as a deduction treating it to be business expenditure. That decision was Pratap Cotton Trading Company Vs. Commissioner of Income Tax, Following that decision, this reference also has to be answered in favour of the assessee. The aforesaid question is, therefore, answered as follows :

"The Tribunal was rot justified in holding that the messing expenses incurred for supply of bare meals to the customers and the constituents is not business expenditure and, therefore, not a permissible deduction u/s 37(2B) of the Income Tax Act, 1961. "

The parties shall bear their own costs.