DEVICHAND BASTIMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BOTH these references were heard together and it will be convenient to dispose them of by a common order, for, the arguments in both the references are identical.

(2.) WE may first notice the facts leading to Reference No. 9 of 1977 : The assessee is a registered firm. The previous year relevant to the assessment year 1972-73 ended on Diwali 1971. The asseessee derived income from agricultural commodities and adat. For the assessment years 1972-73 and 1973-74, the assessee filed returns declaring an income of Rs. 85,150 and Rs. 94,580, respectively. The assessee, inter alia, claimed messing expenses to the tune of Rs. 4,500 and Rs. 4,800 for the assessment years 1972-73 and 1973-74, respectively. The Income-tax Officer (ITO) was of the view that the expenses were in the nature of entertainment and, as such, in view of Section 37(2B) of the I.T. Act, 1961 (No. XLIII of 1961) ("the Act" herein), the aforesaid claim could not be allowed. On appeal, the A AC, vide order dated June 14, 1974, held that the expenses in question were not hit by the provisions of Section 37(2B) of the Act as, in his opinion, such expenses were incidental to the business. The AAC, therefore, allowed the expenses to the extent of Rs. 3,000 each year. A further appeal was taken by the Revenue to the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (" the Tribunal " herein). The Tribunal by its order dated November 11, 1975, held that the expenditure incurred on providing food to constituents or entertaing them on soft drinks, namely, coca cola, coffee, tea, etc,, will be expenditure in the nature of entertainment. It, therefore, disallowed the claim of messing expenses for both the assessment years in question. It has referred the following questions of law arising out of its order for our opinion :

(3.) THUS, it is clear that the above Explanation 2 to Section 37(2A) of the Act was inserted with effect from April 1, 1976. In D.B.I.T. Ref. No. 9 of 1977, the assessment years in question are 1972-73 and 1973-74 and in D.B.I.T. Ref. No. 42 of 1977, the assessment year involved is 1974-75. We are, thus, concerned with Section 37(2B) of the Act as it existed in the years 1972-73, 1973-74 and 1974-75.