COMMISSIONER OF INCOME TAX Vs. NITCO ROADWAYS LTD

JUDGEMENT

(1.) By this reference under section 256(1) of the Income-tax Act,1961 ("Act"),the Income-tax Appellate Tribunal ,Amritsar Bench, Amritsar ("Tribunal") has referred the following question of law to this Court for opinion at the instance of the revenue:

(2.) We have heard Mr.Anil Bhan, learned counsel for the revenue. None appears for the assessee.

(3.) This reference pertains to the assessment year 1973-74. The dispute is about the allowability of expenditure of a sum of Rs.10,338 incurred by the assessee in the relevant previous year on providing tea to its staff and customers. The total expenditure incurred on this account was Rs.13,338. The Income-tax Officer allowed deduction of a sum of Rs 3,000 only which, according to him, was the estimated expenditure on providing tea to the members of the staff and disallowed the balance expenditure of Rs.10,338 which, according to him, was the estimated expenditure incurred on providing tea to the customers, as entertainment expenditure. The assessee appealed to the Appellate Assisstant Commissioner of Income-tax . The Appellate Assistant Commissioner held that the expenditure incurred on providing tea to the customers could not be regarded as entertainment expenditure . He, therefore, allowed the appeal of the assessee and deleted the disallowance. Against the order of the Appellate Assistant Commissioner, revenue appealed to the Tribunal . The Tribunal dismissed the appeal of the revenue .The Tribunal held that the expenditure incurred on providing tea to the customers could not be treated as an entertainment expenditure and hence it was allowable as a business expenditure under section 37(1) of the Act. In coming to this conclusion , the Tribunal relied upon the decision of the Gujarat High Court in CIT v. Patel Brothers & Co. Ltd. (1977) 106 ITR 424 . Aggrieved by the above decision , revenue applied under section 256(1) of the Act to the Tribunal for reference of the question whether provision of tea to the customers could be regarded as entertainment expenditure within the meaning of section 37(2B) of the Act to this Court for opinion. As, at that time, there was divergence of opinion on this point between different High Courts and the Tribunal had followed the Gujarat High Court decision ( cited above ) which was in favour of the assessee, the Tribunal allowed the application of the revenue. Hence this reference.