COMMISSIONER OF INCOME TAX Vs. AGARPARA CO LTD

JUDGEMENT

(1.) ON an application of the Revenue under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions, as questions of law, arising out of its order, for the opinion of this Court :

(2.) SO far as question No. 2 is concerned, the controversy raised therein is covered by the two decisions of this Court in CIT vs. Pioneer Trading Company (P) Ltd. (1968) 70 ITR 347 (Cal) and CIT vs. Ramjeewan Sarawgee and SOns (1977) 107 ITR 845 (Cal). The decision of this Court in Pioneer Trading Co. (P) Ltd. (supra) has been approved by the Supreme Court subsequently in CIT vs. Shantilal (P) Ltd. (1983) 35 CTR (SC) 395 : (1983) 144 ITR 57 (SC). In view of the aforesaid, we answer question No. 2 in the affirmative and in favour of the assessee.

(3.) THE CIT did not accept the contention of the assessee. He held that the expenditure was incurred for the purpose of business, but the same was not allowable as a deduction by reason of s. 37(2B) of the Act, as the said expenditure was on account of entertainment. He held, following a decision of the Allahabad High Court in Brij Raman Dass and Sons vs. CIT 1975 CTR (All) 223 : (1976) 104 ITR 541 (All), that refreshment or gratification of all kinds supplied would come within the meaning of entertainment. THE CIT directed the ITO to disallow the said expenditure and modify the assessment accordingly. Being aggrieved, the assessee preferred an appeal to the Tribunal. THE Tribunal noted its earlier decision in the case of the same assessee for the subsequent asst. yr. 1973-74, where the Tribunal had followed a decision of the Gujarat High Court in CIT vs. Patel Brothers and Co. Ltd. (1977) 106 ITR 424 (Guj), and had held that the expenditure incurred by the assessee in providing cigarettes and other items to its customers was an expenditure incurred out of commercial expediency and to meet customary hospitality. THE Tribunal set aside the decision of the CIT and restored the original assessment by the ITO allowing deduction of the said amount. THE present reference was initiated from the above order of the Tribunal.