CHANDMULL RAJGARHIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN these references under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as " the Act ") which relate to asst. yrs. 1970 -71 to 1972 -73, the Tribunal, Patna Bench, has referred to this Court the following questions for its opinion :

(2.) THE relevant facts for answering question No. 1, in short, are that the assessee has a mica business during the course of which it has to receive several foreign guests and visitors. In the asst. year 1970 -71, the assessee spent Rs. 42,625 as expenditure in entertaining the foreign guests and visitors. The ITO allowed the expenditure to the extent of Rs. 5,000 out of the aforesaid expenditure claimed by the assessee and disallowed the balance sum of Rs. 37,625. The assessee took the matter in appeal and the AAC remanded the matter to the ITO as the details of expenditure were not furnished by the assessee and the assessee was not entitled to claim any expenditure incurred on this count after February 28, 1970. In the asst. yrs. 1971 -72 and 1972 -73, the assessee claimed Rs. 22,380 and Rs. 21,742 respectively on the aforesaid two counts which claims were disallowed by the ITO in their entirety as after February 28, 1970, no entertainment expenditure could be allowed and the disallowance was affirmed by the AAC. Thereafter the assessee preferred three separate appeals before the Tribunal against the orders passed by the AAC but the Tribunal has rejected all the three appeals. Hence, these references to this Court.

(3.) LEARNED counsel for the Revenue, on the other hand, contended that each and every expenditure incurred in entertaining foreign guests and visitors is expenditure in the nature of entertainment expenditure within the meaning of ss. 37(2A) and (2B) of the Act irrespective of the fact whether the expenditure incurred was on a lavish and extravagant scale or not. In support of his contention, learned counsel placed reliance upon the cases in CIT vs. Veeriah Reddiar 1976 CTR (Ker) 341 (FB) : (1977) 106 ITR 610 (Ker) (FB), Brij Raman Dass and Sons vs. CIT 1975 CTR (All) 223 : (1976) 104 ITR 541 (All), CIT vs. Gheru Lal Bal Chand 1977 CTR (P&H) 150 : (1978) 111 ITR 134 (P&H), CIT vs. Khem Chand Bahadur Chand (1981) 23 CTR (P&H) 319 : (1981) 131 ITR 336 (P&H)(FB) and Mysodet (Pvt.) Ltd. vs. CIT (1987) 60 CTR (Kar) 49 : (1987) 163 ITR 848 (Kar).