Commissioner of Income Tax vs Ram Chander Ram Kishandas

B.N. Kirpal, J.—In respect of the assessment year 1972-73, the Income Tax Appellate Tribunal has stated the case and referred the following question to this court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that a sum of Rs. 7,971 did not represent entertainment expenses and they were not hit by the provisions of section 37 of the Income Tax Act, 1961 ?"

The facts as found by the Tribunal are that the assessed is a firm of commission agents and dealers in cloth. In its accounts for the year ended on June 24, 1971, relevant to the assessment year 1972-73, it debited Rs. 7,971 as Rasoi expenses which were claimed as revenue expenditure. By applying the provisions of section 37(2B), the Income Tax Officer disallowed this claim by treating it as an entertainment expense. The Appellate Assistant Commissioner, on appeal, allowed the claim by coming to the conclusion that this expenditure was very necessary for the purpose of carrying on the assessed''s business and it was not in the nature of entertainment expense.

The Revenue filed an appeal before the Tribunal. The assessed all along had explained that the expense which it incurred represented the cost of coarse food and conveniences which were provided to "veoparies" and employees of the firm who used to come to do business and that the expenditure was not at all in the nature of entertainment expenditure as contemplated by section 37(2B). The Tribunal came to the conclusion that the assessed was a commission agent who is required customarily to provide meager and modest meals to its constituents and, in that process, also provides such modest meals to its constituents and, in that process, also provides such modest meals to its own employees. After seeing the extent of the expenditure the same was allowed.

Thereafter on an application being made, the Tribunal has referred the aforesaid question to this court.

The point in issue, as far as this court is concerned, is no longer rest integra. Dealing with a similar question in regard to a commission agent, like the one in the present case in Santlal Kashmirilal Vs. Commissioner of Income Tax, Delhi, , a Division Bench of this court examined the issue. There also the assessed was a commission agent in foodgrains. Purchasers from outstation used to come to the assessed''s place of business who used to incur customary expenditure by providing food, cold drinks, tea, etc. This court held that "We would, Therefore, hold that in spite of the quantum being relatively high, the expense could not be treated as ''entertainment expenditure'' in the circumstances of this particular line of business".

This court did not go into the larger question as to what is the meaning and full scope and extent of the expression "entertainment expenditure".

Shri Gupta has vehemently contended that this court did not consider the full impact and effect of section 37(2B) as it existed at that time. Shri Gupta has also relied upon the Full Bench decisions of several High Courts in the case of Commissioner of Income Tax Vs. Veeriah Reddiar, , Commissioner of Income Tax Vs. Khem Chand Bahadur Chand, and Phool Chand Gajanand Vs. The Commissioner of Income Tax, and has contended that the expenses in question were in the nature of entertainment expenditure.

In our opinion, the said decisions can be of little assistance to Shri Gupta in the present case. The reason for this is obvious, namely, that a Division Bench of this court has, in an identical case, held that such expenses cannot be regarded as entertainment expenses and, Therefore, they were not disallowable u/s 37(2B). We are bound by the said decision and we see no reason as to why we should refer the matter to a larger Bench.

Following the decision of this court in Santlal Kashmirilal Vs. Commissioner of Income Tax, Delhi, , the question of law referred to us is answered in the affirmative and in favor of the assessed.

There will, however, be no order as to costs.