Law:

Section:

section 37(2a) of the income-tax act, 1961-entertainment expenditure-whether expenditure incurred out of bare necessity or by way of ordinary courtesy or provision of food and drink to client, constituent or customer, as contrasted with expenditure on arranging party or banquet or amusement, was allowable as business expenditure-held, yes Facts The assessee had claimed deductions towards entertainment expenditure as well as towards business promotion expenses which, inter alia, included expenditure on entertainment of foreign and other visitors and on air tickets and hotel accommodation. All these expenses were disallowed by the ITO. The AAC allowed partial relief on these items. The Tribunal affirmed the AAC's order for one assessment year and in respect of the other assessment year, it reduced the relief allowed by the AAC. Complete details of expenditure were, however, not available on record. On reference : Held The true test to be applied to decide whether an expenditure is 'in the nature of entertainment expenditure' is to find out whether the expenditure is incurred on providing food and drink only to a client, constituent or a customer which is in the nature of bare necessity or by way of ordinary courtesy. Such an expenditure will not amount to entertainment expenditure. But if a party is arranged or a banquet is given or some amusement is provided to or in connection with the visit of such persons, it will fall within the ambit of the aforesaid expression. ( The Court remanded the case back to the Tribunal for going into the details of the expenditure and to decide the nature of each item of expenditure on the basis of the legal position laid down by them.) section 2(6)(c) of the finance act, 1969-industrial company-whether assessee-company could be treated as industrial company if it was mainly engaged in specified activity notwithstanding income from such activity being less than 51 per cent of its total income-held, yes Facts The assessee-company was engaged in the business of export of tobacco which, inter alia, involved processing of tobacco also. Its claim for being treated as an industrial company was not allowed by the department on the ground…

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