Rajasthan Cotton Mills vs Commissioner of Income Tax

S.K. Mal Lodha, J.—The Tribunal, Jaipur Bench, Jaipur has referred the following question of law which is said to arise out of its order dated 28-3-1977 passed in income tax Appeal No. 278 (Jp.) 1976-77 relating to the assessment year 1974-75: Whether, on the facts and in circumstances of the case, the Tribunal is right in holding that the fooding and tea expenses of Rs. 7,269 Incurred by the firm In providing tea, etc., to Its adatias and customers were in the nature of entertainment expenses within the meaning of section 37(2B) of the income tax Act, 1961 and that they were, therefore, not allowable Income in respect of assessment year 1974-75?

The ITO vide his order dated 1-3-1975 disallowed Rs. 7,269 on the ground that the amount relates to entertainment expenses. On appeal the AAC vide his order dated 7-4-1976, deleted the disallowance of Rs. 7,269 made by the ITO. The Tribunal, relying on Commissioner of Income Tax Vs. Veeriah Reddiar, opined that the amount of Rs. 7,269 is hit by provisions of section 37(2B) of the Act and, therefore, it reversed the order of the AAC restored that of the ITO. It may be stated that the Tribunal preferred the view taken by the Full Bench in Veeriah Beddiar''s case (supra) and did not follow Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., and Brij Raman Dass and Sons Vs. Commissioner of Income Tax,

In Devichand Bastimal v. CIT [DB IT Reference No. 9 of 1977] and Bhanwar Lal v. CIT [DB IT Reference No. 42 of 1977, dated 24-4-1985] we have held that the expenses incurred on food, tea, etc., to the outside constituent customers viz., messing expenses, are not entertainment expenses and are thus not hit by section 37(2B) of the Act. In coming to this conclusion. Patel Bros. & Co. Ltd.''s case (supra) and Commissioner of Income Tax, Vidarbha And Marathwada Vs. Shah Nanji Nagsi, and the other High Courts taking the similar view, were followed and dissent was expressed with the view taken in Veeriah Reddiar''s case (supra) which was followed by the Tribunal in its order dated 28-3-1977. For the reasons mentioned in Devichand Bastimal''s case (supra) and Bhanwar Lal''s case (supra), we answer the above-said question in the negative, i.e., in favour of the assessee and against the revenue. The parties are left to bear their own costs of this reference.