COMMISSIONER OF INCOME TAX Vs. GRANDLAY ELECTRICALS INDIA

JUDGEMENT

(1.) IN respect of the asst. year 1967 -68, the Tribunal has stated the case and referred the following question to this Court :

(2.) IT is unfortunate that the statement of the case as drawn up by the Tribunal lacks clarity, to say the least. Learned counsel for the Department has, however, taken us through the orders passed by the authorities under the Act. The facts, briefly stated, are that the assessee had made a claim for deduction of sale promotion expense. The ITO came to the conclusion that, out of the total expenses claimed by it, a sum of Rs. 37,498 was in the nature of entertainment expense. The ITO applied the provisions of S. 37(2A) of the IT Act, 1961, and allowed a deduction of Rs. 5,000 and disallowed deduction of the balance of Rs. 32,498. An appeal was filed to the AAC who, inter alia, allowed deduction on the amount spent by the assessee for tea, cold drink, etc., served to its customers. The sum so spent, came to Rs. 18,498. The ITO filed a further appeal to the Tribunal. It was held by the Tribunal that the expense of Rs. 18,498 had been correctly allowed. This is the expense which was incurred by the assessee in providing soft drinks, tea, coffee, etc., to its customers, and the Tribunal was of the view that this expense did not amount to entertainment expenditure. It is thereafter that the aforesaid question of law has been referred to this Court.

(3.) THE Tribunal decided the appeal, out of which this reference as arisen, vide its order dt. 3rd Jan., 1981. By the Finance Act, 1983, Explanation 2 has been inserted in S. 37(2A) w.e.f. 1st April, 1976. The said Explanation reads as follows :