Law:

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Section 37(2B) of the Income-tax Act, 1961 - Advertisement expenditure - Assessment years 1976-77 and 1977-78 - Whether where assessee-company, which was engaged in business of running hotels, had provided free rooms and meals to representative, tourist agent, provisions of section 37(2B) would not be attracted in respect of expenditure incurred towards same - Held, yes FACTS The assessee-company was engaged in the business of running hotels. During the assessment years 1976-77 and 1977-78, the ITO added certain amount on account of entertainment of guests and various visitors for which no bills were drawn by the assessee. As per the assessee the guest facility was made available only to travel agents, who used to provide business to the assessee, and therefore, if at all there was any income on account of these guests, the same was treated as business expenditure and, therefore, the action of the ITO was not justified. The AAC in appeal upheld Rs. 10,000 towards expenditure by the assessee in providing free facility to the guestss of the general manager. On appeal by the revenue, the Tribunal upheld order of AAC. On reference : HELD In the instant case, the assessee had provided free room and meals to one representative, tourist agent. The provisions of section 37(2B) would not be attracted as the assessee had not incurred any expenditure in providing free room and meals since it was running a hotel industry and no expenditure on that ground had been claimed by it as a deduction. Note : The case was decided in favour of assessee. A.N. Mahajan for the Applicant. A. Upadhyaya for the Respondent. JUDGMENT The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this court : "Whether, on the facts and in the circumstances of the case, the order of the Tribunal upholding the deletion for entertainment expenditure is vitiated as it has failed to appreciate the provisions of section 37(2B) of the Act correctly ?" The reference relates to the assessment years 1976-77 and 1977-78. Briefly stated the facts giving rise to the present…

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