Law:

Section:

JUDGMENT This is a reference under section 256(1) of the Income-tax Act, 1961. The assessee carries on business in Benarsi Goods in the name and style of Brij Raman Dass & Sons at Varanasi. The reference relates to the assessment year 1969-70 with the previous year ending on 20th October, 1968. For the computation of its net income from business, the assessee claimed a deduction of shop expenses totalling Rs. 79,449. This amount included a sum of Rs. 13,653 being the expenditure incurred on providing tea, lassi, jalpan, etc., to the customers. The Income-tax Officer allowed a sum of Rs. 5,000 only out of this expenditure in view of the provisions of section 37(2A) of the Act and disallowed the balance. The assessment order was upheld on appeal by the Appellate Assistant Commissioner of Income-tax as also by the Income-tax Appellate Tribunal on second appeal. At the instance of the assessee the Tribunal has referred the following question of law for our opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming disallowance of the expenses of Rs. 13,653 under section 37(2A) of the Income-tax Act, 1961 ?" The income-tax authorities as also the Tribunal have treated the expenditure in question as being expenditure in the nature of entertainment expenditure. Section 37(2A) of the Act restricts the allowance of such expenditure to a maximum of Rs. 5,000 in respect of any previous year which expires after 30th September, 1967. The assessee's case is clearly covered by this provision. The first contention of the assessee is that the expenditure in question is not "entertainment expenditure" contemplated by sub-section (2A) of section 37, but is an expenditure incurred wholly and exclusively for purposes of business allowable under section 37(1). There is a fallacy in this argument. Sub-section (2A) of section 37 does not contemplate an expenditure of different kind than that contemplated by section 37(1). Every expenditure falling under sub-section (2A) of section 37 must necessarily be an expenditure wholly and exclusively incurred for purposes of business, otherwise such an expenditure would not be allowable…

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