R.R.MISRA, J. - (1.) PHOOL Chand Gajanand, a registered firm, carried on wholesale cloth business at Kanpur. During the asst. year 1974 -75, it claimed deduction of Rs. 7,190 in relation to the messing expenses of its customers. The ITO disallowed the claim under S. 37(2B) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"). On appeal, the AAC , however, accepted the plea of the assessee and accordingly allowed the appeal. Aggrieved, the ITO concerned filed a second appeal before the Tribunal. The Tribunal took the view that with regard to the provisions of S. 37(2B) of the Act, the expenses in question fell within the category of "in the nature of entertainment expenditure" and, therefore, deserved to be disallowed. In doing so, it also followed a decision of this Court in Brij Raman Dass & Sons vs. CIT 1975 CTR (All) 223: (1976) 104 ITR 541. The result was that the order passed by the AAC was set aside and the order passed by the ITO disallowing the claim of the assessee was restored. Thereafter, at the instance of the assessee, the following question was referred for the opinion of this Court under S. 256(1) of the Act : "Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 7,190 could be disallowed under S. 37(2B) of the Act. "When the matter came up for hearing before a Division Bench of this Court, it found that there is a divergence of judicial opinion on this question and the leading case which takes a contrary view was the case of CIT vs. Patel Brothers and Co. Ltd. (1977) 106 ITR 424 (Guj). It accordingly felt that while deciding Brij Raman Dass' case (supra), this Court had interpreted the word "entertainment" in a literal sense but as the amount was spent in providing food to the customers, it was nothing more than extension of common Courtesy to a visitor who comes to the assessee in connection with his business. It also felt that the various High Courts which took the view and agreed with the view of this Court in the case of Brij Raman Dass (supra) which has to be tested in the light of the concept of entertainment generally held in the society to which the enactment relates. Therefore, the said Bench was of the opinion that the said decision of Brij Raman Dass (supra) required reconsideration and, accordingly, the matter has been referred to us for our opinion. We have heard learned counsel for the parties.
(2.) LEARNED counsel for the assessee contended that the expenditure so incurred by the assessee is not liable to be disallowed under S. 37(2A) or (2B) of the Act as the expenditure was not on a lavish or extravagant scale. In support of his submission, learned counsel has relied upon the decision in the case of CIT vs. Patel Brothers & Co. Ltd. (supra) followed by various other High Courts in the cases of CIT vs. Corporation Bank Ltd. (1979) 10 CTR (Kar) 39:(1979) 117 ITR 271 (Kar), Addl. CIT vs. Maddi Venkataratnam & Co. Ltd. 1977 CTR (AP) 18:(1979) 119 ITR 514 (AP), CIT vs. Karuppuswamy Nadar & Sons (1979) 120 ITR 140 (Mad), CIT vs. Lakhmichand Muchhal (1982) 134 ITR 234 (MP) and Devichand Bastimal vs. CIT (1985) 49 CTR (Raj) 43:(1985) 156 ITR 166 (Raj). Sri Bharatji Agrawal, learned senior standing counsel appearing for the Revenue, however, on the other hand, contended that having regard to the phraseology used in sub -ss. (2A) and (2B) of s. 37 of the Act and the wide ambit of the words "any expenditure in the nature of entertainment expenditure", the expenses in question are liable to be disallowed as has been held by the Tribunal irrespective of the fact whether the expenditure were incurred on a lavish or extravagant scale or not. In support of this contention, learned standing counsel has placed reliance on various decisions of this Court beginning from the leading case of Brij Raman Dass and Sons vs. CIT (supra) and the cases of other High Courts which have taken the same view in CIT vs. Gheru Lal Bal Chand 1977 CTR (P and H ) 150:(1978) 111 ITR 134 (P and H), CIT vs. Khem Chand Bahadur Chand (1981) 20 CTR (Cal) 282:(1981) 131 ITR 336 (P and H) (FB), Mysodet (P) Ltd. vs. CIT (1987) 163 ITR 848 (Kar) and CIT vs. Veeriah Reddiar 1976 CTR (Ker) 341 (FB)(1977) 106 ITR 610 (Ker) (FB). He also submits that so far as the Allahabad High Court is concerned, this Court has, over a period of 12 years, consistently taken the view, as was held in the case of Brij Raman Dass and Sons vs. CIT (supra) and has relied on the subsequent cases decided by this Court in the cases of CIT vs. Manoo Ram Ram Karan Dass (1979) 116 ITR 606, CIT vs. Kunji Lal Dhanpat Rai (1979) 116 ITR 608 (All) and CIT vs. Modi Spinning and Manufacturing Mills Co. Ltd. (1980) 125 ITR 361(All).
(3.) THE moot question, therefore, that falls for consideration before us is as to whether the amount in question spent by the assessee would come within the expression "expenditure in the nature of entertainment expenditure" occurring in S. 37(2A) and (2B) of the Act. To consider and answer this question, therefore, it is imperative to go into the legislative history of S. 37 of the Act and the object underlying the introduction of S. 37(2B) of the Act.;