1999 PLP 908 (PTD)

Held, that the expenditure incurred by the assessee in the accounting year relevant to the assessment year 1976-77 in supplying coffee, tea, etc., to its clients was not deductible in computing the total income of the assessee. CIT v. Green Roadways (1985) 154 ITR 639 (Raj.); CIT v. Central Distillery and Breweries Ltd. (1993) 202 ITR 45 (Delhi) and CIT v. Patel Bros. & Co. Ltd. (1995) 215 ITR 165 (SC) fol. CIT v. Karuppuswamy Nadar & Sons (1979) 120 ITR 140 (Mad ref. C.V. Rajan for the Commissioner, R. Janakiraman for the Assessee In pursuance of the direction given by the Supreme Court the Tribunal referred the following question for the opinion of this Court under section 256(2) of the Income Tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that Rs.47,585 being expenditure incurred by the assessee in the supply of coffee, tea, etc. to its clients should be allowed as a deduction in the computation of total income of the assessee?" The assessee is a bank carrying on the business of banking. For the assessment year 1976-77, the Income-tax Officer noticed that it had claimed Rs.47,584 as expenditure incurred for the supply of tea, coffee, etc., to its clients. The Income-tax Officer disallowed the same as being in the nature of entertainment expenditure applying the provisions of section 37(2-B) of the Act. The assessee appealed to the Commissioner of Income-tax (Appeals), who deleted the addition of Rs.47,584 and allowed the appeal. The Department then appealed to the Tribunal, which relied upon the decision of this Court in Cit v. Karuppuswamy Nadar & Sons (1979) 120 ITR 140, and dismissed the Departmental appeal. Explanation 2 to section 37(2-A) introduced by the Finance Act, 1983, with retrospective effect from April 1, 1976, is couched in very wide language and leaves no doubt that the provision of hospitality of every kind by the assessee to any person, except his employees in his office, factory or other place of work by providing food or beverages or in any other manner whatsoever, shall be included in the expression "entertainment expenditure" occurring in subsection (2-A) of section 37 of the Act. Even if the providing of such hospitality of supplying food or beverages to the customers or any other person may be made by reason of any express or implied contract or even on account of custom or usage of trade, the same shall be considered as "entertainment expenditure" within the meaning of section 37(2-A) and would not be deductible under section 37(1) of the Act from the income of the assessee under the head "Profits and gains of business". (See CIT v. Green Roadways (1985) 154 ITR 639 (Raj.); CIT v. Central Distillery and Breweries Ltd. (1993) 202 ITR 45 (Delhi) and CIT v. Patel Bros. & Co. Ltd. (1995) 215 ITR 165 (SC)). In the present case, it is clearly stated that a sum of Rs.47,585 was incurred by the assessee by way of expenditure in the supply of coffee, tea, etc., to its clients. Therefore, the Tribunal was not correct in allowing the said sum of Rs.47,585 as not being entertainment expenditure. Accordingly, we answer the question referred to us in the native and in favour of the Department. No costs. C.M.A./1771/FC Reference answered.