Law: Income Tax Act, 1961

Section: 37,37(2A)

Income-tax--Business expenditure---Ceiling on expenditure---Entertainment expenditure---Law applicable---Effect of insertion of Expln. 2 to S.37(2A) by Finance Act, 1983, with retrospective effect from 1-4-1976---Amount spent on providing tea, coffee and meals to customers in accounting year relevant to assessment year 1977-78 constituted entertainment expenditure--­ Indian Income Tax Act, 1961, S.37(2A). There has been an enlargement of the meaning of "entertainment expenditure" by insertion of Explanation 2 to subsection (2A) of section 37. of the Income Tax Act, 1961, by the Finance, Act, 1983, with retrospective effect from April 1, 1976. By this Explanation the meaning of entertainment expenditure in subsection (2A) of section 37 has been enlarged to include expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food and beverages or in any other manner. As a result, in relation to expenses for the assessment year 1977-78 and subsequent assessment years, such expenditure -would be treated as "entertainment expenditure" within the meaning-of subsection (2A) of section 37 of the Act and deductibility thereof has to be decided in the light of the restrictions contained therein. CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC) ref. JUDGMENT Dr. B. P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the Revenue: . "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the assessee was entitled to the deduction of Rs.54,305?" The material facts giving rise to the question are as under: The assessee is engaged in the business of manufacture of plastics. It has its factory at Poiser, Kandivali. It has an office at Bombay which is situated at Lotus House. The assessee has also offices in Delhi, Calcutta, Bhagwara and Sonipat. During the previous year ended March 31, 1977, relevant to the assessment year 1977-78, to which the reference pertains, the assessee incurred expenditure…

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