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Section 37(2B) of the income-tax act, 1961 [as it stood before 1-4-1977]-Entertainment expenditure-Whether expenditure incurred in serving coffee and tea to visiting clients in the course of business amounts to entertainment expenditure-Held, no Facts The assessee-firm was carrying on business in cloth on wholesale basis. For the assessment year 1971-72, it incurred an expenditure of Rs. 12,495 in serving coffee and tea to its customers. The ITO disallowed this expenditure as falling within the mischief of section 37(2B). The AAC confirmed the ITO's order. The Tribunal held that the expenditure incurred was obligatory due to the exigencies of the business and it could not be characterised as an entertainment expenditure. On reference : Held 1. There is no universal formula for finding out as to what is the expenditure in the nature of entertainment or what is not such an expenditure. The very concept of entertainment would rule out cases of business or commercial courtesy extended to clients who visit the businessmen for doing business. Entertainment postulates that it is self-seeking after pleasure and cannot comprehend customary hospitalities shown to visiting clients for business. This running after pleasure may be reflected from lavish party given in a posh hotel even to the clientele. But the ordinary elementary extension of business courtesy or civility to visiting clients by allowing them to quench their thirst, as in the instant case, cannot be understood as expenditure in the nature of entertainment. It would be a misnomer to call coffee or tea as items of entertainment. 2. The Tribunal was, thus, justified in allowing the assessee's claim under section 37(1). Case review CIT v. Patel Brothers & Co. Ltd. [1977] 106 ITR 424 (Guj.) and CIT v. Shah Nanji Nagsi [1979] 116 ITR 292 (Bom.)followed. CIT v. Veeriah Reddiar [1977] 106 ITR 610 (Ker.), Brij Raman Dass & Sons v. CIT [1976] 104 ITR 541 (All.) and CIT v. Cheru Lal Bal Chand [1978] 111 ITR 134 (Punj. & Har.) dissented from. Cases referred to Brij Raman Dass & Sons v. CIT [1976] 104 ITR 541 (All.), CIT v. Gheru Lal Bal Chand [1978] 111 ITR 134 (Punj.), CITv. Patel Bros. & Co. Ltd.…

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