PHOOL CHAND GAJANAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) PHOOL Chand Gajanand, a registered firm, carried on wholesale cloth business at Kanpur. During the asst. year 1974 -75, it claimed deduction of Rs. 7,190 in relation to the messing expenses of its customers. The ITO disallowed the claim under S. 37(2B) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"). On appeal, the AAC , however, accepted the plea of the assessee and accordingly allowed the appeal. Aggrieved, the ITO concerned filed a second appeal before the Tribunal. The Tribunal took the view that with regard to the provisions of S. 37(2B) of the Act, the expenses in question fell within the category of "in the nature of entertainment expenditure" and, therefore, deserved to be disallowed. In doing so, it also followed a decision of this Court in Brij Raman Dass & Sons vs. CIT 1975 CTR (All) 223: (1976) 104 ITR 541. The result was that the order passed by the AAC was set aside and the order passed by the ITO disallowing the claim of the assessee was restored. Thereafter, at the instance of the assessee, the following question was referred for the opinion of this Court under S. 256(1) of the Act :

(2.) LEARNED counsel for the assessee contended that the expenditure so incurred by the assessee is not liable to be disallowed under S. 37(2A) or (2B) of the Act as the expenditure was not on a lavish or extravagant scale. In support of his submission, learned counsel has relied upon the decision in the case of CIT vs. Patel Brothers & Co. Ltd. (supra) followed by various other High Courts in the cases of CIT vs. Corporation Bank Ltd. (1979) 10 CTR (Kar) 39:(1979) 117 ITR 271 (Kar), Addl. CIT vs. Maddi Venkataratnam & Co. Ltd. 1977 CTR (AP) 18:(1979) 119 ITR 514 (AP), CIT vs. Karuppuswamy Nadar & Sons (1979) 120 ITR 140 (Mad), CIT vs. Lakhmichand Muchhal (1982) 134 ITR 234 (MP) and Devichand Bastimal vs. CIT (1985) 49 CTR (Raj) 43:(1985) 156 ITR 166 (Raj).

(3.) THE moot question, therefore, that falls for consideration before us is as to whether the amount in question spent by the assessee would come within the expression "expenditure in the nature of entertainment expenditure" occurring in S. 37(2A) and (2B) of the Act. To consider and answer this question, therefore, it is imperative to go into the legislative history of S. 37 of the Act and the object underlying the introduction of S. 37(2B) of the Act.