Commissioner of Income Tax vs Capital Metals

By The Court

The question referred for the opinion of this Court is as under :

"Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in allowing the expenses incurred on providing meals, tea or cold drinks, etc. to the customers ?"

The Tribunal relying upon the decision of Gujarat High Court in Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., held that the expenditure claimed by the assessed was not in the nature of entertainment expenditure and was an allowable deduction.

A Division Bench of this Court, of which one of us (D. K. Jain, J.) was a member, in the case of Commissioner of Income Tax Vs. Rajasthan Mercantile Co. Ltd., India Tourism Development Corporation Ltd. and Gulshan Kumar Vijay Ku, has held that Expln. 2 to s. 37(2A) of the Act is not retrospective and is applicable only w.e.f. 1st April, 1976. This decision has been approved by the Supreme Court in CIT vs . Patel Bros. & Co. Ltd. : [1995]215ITR165(SC) holding that the word "entertainment" must be construed strictly and not expansively and that the ordinary meaning of the word ''entertainment'' cannot include hospitality. The Supreme Court has further opined that the expenditure incurred in extending customary hospitality by offering meals as a bare necessity would not be "entertainment expenditure" without the aid of the enlarged meaning given to the words by Expln. 2 inserted w.e.f. 1st April, 1976. The said Explanation has been held to be prospective and not having retrospective application. The decision in Patel Bros (supra) has also been affirmed.

In view of the aforesaid, since the assessment years in question are prior to 1st April, 1976, we answer the question in affirmative, in favor of the assessed and against the Revenue. No order as to costs.