Law:

Section:

Section 37(2A) of the income-tax act, 1961-Entertainment expenditure-Whether expenditure incurred for providing food and refreshments to constituents and customers in clubs out of business needs and exigencies amounts to entertainment expenditure-Held, yes-Whether expenditure, which is in nature of entertainment, will fall under section 37(2A) only and not under section 37(1) even if it is incurred wholly and exclusively for purposes of assessee's business-Held, yes Words and phrases-'Entertainment expenditure' occurring in section 37(2A) of the Income-tax Act, 1961 Facts The assessee-firm carried on the business as agents of shipping companies and victualling contractors. Its main business involved the canvassing of cargo and passengers for oceangoing ships. During the relevant assessment year, the assessee claimed deduction under section 37(1) of a sum spent by it on providing food, refreshments, and the like to the firm's constituents and customers in clubs. The ITO held the expenditure to be in the nature of entertainment expenditure and partially disallowed it under section 37(2A). The AAC upheld the ITO's order. On second appeal, the Tribunal held that since the assessee's business as canvasser of cargo and passengers could be successfully done only by maintaining extensive social contracts, the expenditure involved in taking the clients and the ships' crew round the various clubs was dictated purely by business needs and exigencies. Accordingly, it held that the said expenditure could not be regarded as entertainment expenditure and allowed the entire amount as business expenditure. On reference : Held In the general context of section 37, which is a computation provision for arriving at taxable business profits, entertainment which is the focus of discussion under sub-sections (2), (2A) and (2B) can only be entertainment with a business perspective. The idea of entertainment includes hospitality, with or without amusement, but hospitality of a purely personal or non-business nature is entirely excluded not only from section 37(2A) but also from section 37(1) altogether. Where an expenditure is incurred wholly and exclusively for the purposes of the…

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