Commissioner Of Income Tax vs Capital Metals
1996 Latest Caselaw 741 Del

JUDGMENT

By The Court

1. 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 ?"

2. The Tribunal relying upon the decision of Gujarat High Court in CIT vs. Patel Bros. & Co. Ltd. (1977) 106 ITR 424 (Guj) : TC 17R.1308 held that the expenditure claimed by the assessee was not in the nature of entertainment expenditure and was an allowable deduction.

3. A Division Bench of this Court, of which one of us (D. K. Jain, J.) was a member, in the case of CIT vs. Rajasthan Mercantile Co. Ltd. (1995) 211 ITR 400 (Del) : TC 17PS.42 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. 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.

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