Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1967-68 - Assessee carrying on export business, maintained guest houses for foreign buyers - It incurred expenditure for providing lodging and fooding to foreign customers - Income-tax Officer disallowed said expenditure treading same as entertainment expenditure - AAC, however, allowed assessee's claim holding that expenditure in question was necessary for business - Tribunal upheld AAC's order - Whether amount spent by assessee on their guests was item of business expenditure, which would fall under section 37(1) - Held, yes - Whether, therefore, Tribunal was justified in allowing assessee's claim - Held, yes FACTS The assessee carrying on export business, maintained two guest houses for the foreign buyers. It had incurred expenditure for providing lodging and fooding to foreign customers who came and stayed with the assessee for effecting purchases of tobacco. The Income-tax Officer disallowed the expenditure, treating the same as entertainment expenditure. On appeal, the AAC allowed the expenditure holding that the expenditure on boarding and lodging of foreign representatives was necessary for the business and that even if a part of it was on account of drinks, etc., supplied to foreigners, it was not in the nature of entertainment. The Tribunal confirmed the order of the AAC. On reference : HELD It was obvious that in order to earn money from business, the foreign visitors had to be put up and reasonable facilities for their accommodation, food, etc., within reasonable limits had to be provided so that the company could carry on its business of exporting tobacco from India. It was nobody's case that the guest houses were run on a lavish scale, looking particularly to the needs of customers from abroad. Hence, the view taken by the Tribunal that the expenditure was not by way of entertainment as the word "entertainment" is understood in the context of section 37(2), was correct. In the instant case, that the amount spent by the assessee on their guests was an item of business expenditure which would fall under section 37(1). Since it was not entertainment…

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