Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Disallowance---Entertainment expenditure for assessment year 1974-75---No finding regarding nature of expenditure--¬Matter remanded---Indian Income Tax Act, 1961, S.37. The decision in Brij Raman Dass & Sons v. CIT (1976) 104 ITR 541 (All.) has been overruled by the Supreme Court in CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165. The Supreme Court has held that the expenditure incurred in extending customary hospitality by offering ordinary meals as a bare necessity would not be "entertainment expenditure" and such an expenditure would be permissible deduction under section 37(2A) of the Income Tax Act, 1961, as it stood prior to April 1, 1976, when Explanation 2 was brought on the statute book by retrospective amendment made in the year 1983: Held, that from a perusal of the order of the Tribunal it was apparent that there was no discussion about the nature of entertainment on which the amount in dispute was incurred by the assessee for the assessment year 1974-75. There was no discussion either in the assessment order or in the order passed by the Commissioner of Income-tax (Appeals). In the absence of a finding about the nature of entertainment expenses, it was difficult to decide whether the guest house expenses, general charges and entertainment expenses were deductible. Brij Raman Dass & Sons v. CIT (1976) 104 ITR 541 (All.) and CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC) ref. JUDGMENT At the instance of the assessee, the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred under section 256(1) of the Income Tax Act, 1961, the following question of law for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance of Rs.5,975, Rs.9,750 and Rs.4,506, being the guest house expenses, general charges and entertainment expenses, respectively?" The dispute pertains to the assessment year 1974-75. At the outset we may mention that out of the three amounts mentioned in the question, the amount of Rs.9,750 had not been dealt with by the Tribunal in its order passed in the appeal given rise…

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