COMMISSIONER OF INCOME TAX Vs. SIRPUR PAPER MILLS
LAWS(APH)-1971-12-15
HIGH COURT OF ANDHRA PRADESH
Decided on December 17,1971

COMMISSIONER OF INCOME TAX Appellant
VERSUS
SIRPUR PAPER MILLS Respondents

JUDGEMENT

A.D.V.REDDY, J. - (1.) THE two questions referred to us, one at the instance of the Department and the other at the instance of the assessee, are as follows : "1. Whether, on the facts and in the circumstances of the case, the amount expended by the assessee for the maintenance of a guest house at Sirpur is entertainment expenditure within the ambit of the proviso to S. 10(2)(xv) of the IT Act, 1922 ? 2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 40,745 was deductible from the assessee's income as a business expenditure ?"
(2.) THE assessee is a company manufacturing paper at Sirpur and the assessment year in question is 1961 62. During the relevant year a total sum of Rs. 31,126 was shown as expenditure for maintaining a guest House at Sirpur and a deduction was claimed under S. 10(2)(xv) of the Indian IT Act, 1922, from the income of the assessee as business expenditure. This was rejected by the ITO, while on appeal, the AAC held that there was an essential difference between entertainment expenditure and expenditure over guest house as the guest house was maintained by the assessee in order to conduct its day to day business as Sirpur is an out of the way place and allowed this deduction and the deduction was upheld by the Tribunal. Hence the reference on this question at the instance of the Department. The Tribunal has also found that Sirpur is an out of the way place and that as there are no boarding and lodging facilities for its constituents and its employees or such other persons who go there for the purpose of business with the company, the assessee has to provide them with food and shelter and it was the barest minimum that was being provided, and this obviously did not amount to providing any amusement or gratification, that it was merely giving them food and shelter and, therefore, it should be allowed as a business expenditure. We do not see any reason to differ from the conclusion reached by the Tribunal. This question is, therefore, answered in favour (of the assessee.
(3.) THE second question relates to an amount of Rs. 40,745 advanced by the assessee to the Employees', Co operative Society, Sirpur, which was being run for the benefit of the assessee's employees and this amount of Rs. 40,745 became irrecoverable as the society had to be finally liquidated, and the amount was claimed as a bad debt for the asst. year 1955 56. This claim was not allowed by the ITO. On appeal, the AAC allowed this item while the Tribunal, on further appeal, disallowed the same. Hence, the reference at the instance of the assessee.;


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