ELECTRA INDIA LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Allahabad, has referred the following two questions of law under Section 256(1) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), for the opinion to this Court: 1. Whether, on facts and in law, the Tribunal was correct in holding that the expenditure on distribution of sweets, dry fruits and gift packs on the eve of Deewali being business expenditure could not be allowed under Section 37 of the Income -tax Act but its allowability was to be restricted under Section 37(2A) of the Act being expenditure in the nature of entertainment?

(2.) WHETHER the Tribunal was correct in holding that the expenditure of Rs. 99,586 incurred by the company in making donation in cash and kind to educational institution for development of play ground with Deer Park containing a sign board of the donors could not be allowed as deduction under Section 37 of the Act? 2. Briefly stated the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1983 -84.

(3.) WE have heard Shri Suyash Agrawal, learned Counsel for the applicant and Shri A.N. Mahajan, learned standing counsel for the Revenue. Learned Counsel for the applicant submitted that Explanation 2 which was inserted with effect from April 1, 1976, by the Finance Act, 1983, widened the scope of the words 'entertainment expenditure' as expenses and, therefore, the limits provided under Sub -section (2A) of Section 37 of the Act would not be applicable. So far as the advertisement expenses are concerned he submitted that the applicant had incurred an expenditure for advertisement and in fact a board of the applicant's company was also installed in the deer park of Vardhman Academy. Thus, the expenditure was liable to be allowed. Learned standing counsel, however, submitted that after insertion of Explanation 2 to Section 37 of the Act, the scope of entertainment expenditure has been widened and, therefore, hospitality of every kind is to be included in the word 'entertainment' and the expenditure has to be limited as provided under Sub -section (2A) of the Act. So far as advertisement expenses are concerned he submitted that the Tribunal has categorically found, as a fact, that the applicant had treated the sum of Rs. 45,000 given by it to Vardhman Academy as charity/donation and it was only on April 30, 1982, i.e., the end of the accounting period, the said amount was transferred to the advertisement account. Further, the Tribunal had also found that the material amounting to Rs. 44,586 was given in last three days of the accounting period and the Tribunal has found that the assessee could not have published or advertised its name through the medium of the board. The Tribunal has further found that the real expenditure was on the development of the deer park and the advertisement content of the expenditure, if at all, was marginal and peripheral. He submitted that the finding recorded by the Tribunal has not been specifically challenged by means of raising specific question therefore on the basis of the findings recorded by the Tribunal the expenditure in question cannot be termed as advertisement expenditure.