COMMISSIONER OF INCOME TAX Vs. GREEN ROADWAYS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law to this court for its opinion :

(2.) THE assessee, Green Roadways, Udaipur, claimed sums of Rs. 62,222, Rs. 28,673 and Rs. 17,162, during the assessment years 1976-77, 1977-78 and 1978-79, respectively, as expenditure incurred by the assessee in providing tea, coffee, cold drinks, etc., to the customers. THE aforesaid expenditure was claimed by the assessee to be a permissible deduction on the ground that it was obligatory in the trade of transport to provide such facilities to the customers in the interest of business promotion. According to the assessee, the expenses were incurred for the stability, procurement and promotion of business and for maintaining the relations with the customers and as such it was claimed that they were not in the nature of entertainment expenses and that they should be allowed as revenue expenditure.

(3.) LEARNED counsel for the assessee then submitted that the deduction of expenditure claimed by the assessee for business promotion included expenses incurred by him in providing tea, coffee, soft drinks, etc., not only to the customers and guests, but also to the employees of the assessee and that a submission in this respect was made on behalf of the assessee before the Appellate Tribunal. It was urged that the assessee is a transporter and by custom or usage of trade, he is required to incur expenditure on providing tea, coffee, cold drinks, etc., to its constituents, i.e., the customers as well as to the staff, including the drivers of motor vehicles and that the expenditure incurred in this respect was customary in the trade and cannot be said to be of the nature of entertainment. After the insertion of Explanation (2) in Section 37(2A) of the Act, there could be no doubt that even if it may be customary in the trade to offer hospitality by way of providing tea, coffee, cold drinks, etc., to the customers, yet the expenditure incurred by the assessee in respect thereof cannot be excluded while computing the income of the assessor. But, as pointed out by us above, the expenditure incurred by the assessor in providing food, beverages to the employees or members of the staff, including drivers, would be a permissible deduction under Section 37(1) read with the Explanation (2) to Section 37(2A). However, the question referred to us by the Tribunal relates to the expenditure incurred by the assessee on providing tea, coffee and soft drinks, etc., only to the customers and not to the employees. We have no doubt in holding that the aforesaid expenditure incurred by the assessee is of the nature of "entertainment expenditure" within the meaning of Section 37(2A) of the Act and after the coming into force of Explanation (2), there could not be two opinions in this matter. Accordingly, we answer the question in the negative, in favour of the Revenue and against the assessee. The parties are left to bear their own costs.