SANTLAL KASHMIRILAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to us by common statement of case for the asst. yrs. 1972 -73 and 1973 -74:

(2.) THE assessee in question is a firm engaged in the business of arhtias in foodgrains. The business of the assessee is not very extensive. The total arhat receipts for the two years were Rs. 1,02,721 and Rs. 1,14,541, respectively. In the P&L a/c, the assessee claimed Rs. 13,791 in the first year and Rs. 19,979 in the second year as miscellaneous expenses. Out of these, the ITO disallowed Rs. 10,000 in the first year and Rs. 13,791 in the second year as being expenses on cold drinks, tea, food, etc., provided to the constituents on the ground that they were entertainment expenditure not allowable under S. 37(2B).

(3.) THERE was an appeal by the Department to the Tribunal where reliance was placed on a decision of the Allahabad High Court in the case of Brij Raman Dass & Sons vs. CIT 1975 CTR (All) 223 : (1976) 104 ITR 541 (All). Relying on this judgment, the Department's appeal was allowed. But, there was a direction that the ITO should restrict the disallowance to only specific items which were spent on food, soft drinks and other expenses which could be termed as "entertainment expenses" Before us a number of judgments were cited showing that there had been a considerable divergence of view between the High Courts on the question of "entertainment expenditure" and this divergence had been followed by a retrospective amendment of the INCOME TAX ACT, 1961, by the introduction of Expln. 2 in S. 37(2A) of the Act. That Explanation reads as follows: