D.K.SETH, J. - (1.) Two questions have since been referred to this Court in this reference case under Section 256(1) of the IT Act, 1961, namely : R.A. No. 590 (Cal) 1997 "Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in holding that part of sales promotion expenses or sales seminar expenses of Rs. 2,03,846 including inter alia, on account of supply of food and drinks to employees and customers, was business expenditure and an allowable deduction from assessee's business income and not in the nature of entertainment expenditure disallowable under Section 37(2A) of the IT Act." R.A. No. 547(Cal) 1997 "Whether, on the facts and in the circumstances of the case, the Tribunal correctly applied the provisions of Section 36(1)(iii) in confirming the disallowance of interest on borrowed capital in the amount of Rs. 3,05,444." The first question
(2.) The first question is whether the expenditure on food and drinks provided to the employees and those to the customers in course of the seminar for sales promotion held in the previous year 1989-90 was admissible for deduction as business expenditure for entertainment disallowable under Section 37(2A) of the said Act, as applicable to the asst. yr. 1990-91. The assessee has not claimed the amounts spent on food and drinks supplied to persons other than the employees under this head. It has claimed the expenses for the seminar and the food and drinks supplied to the employees.
(3.) Sub-section (2A) of Section 37' prescribes that no allowance shall be made, notwithstanding anything contained in Sub-section (1) or Sub-section (2) of Section 37, in respect of so much of the expenditure in the nature of entertainment expenditure incurred by the assessee in respect of the matters specified. Expln. '2' was subsequently added w.e.f. 1st of April, 1976, for removal of doubts in the form of a declaration in respect of Sub-section (2A) and Sub-section (2B). In the said Explanation, it is provided that entertainment expenditure shall include expenditure on provision of hospitality of every kind by the assessee to any person other than employee, whether by way of provision of food or beverages or any other manner whatsoever and whether or not such provision is made by reason of expressed or implied contract. But the cost of food and drinks provided to the employees in office, factory or other place of their work is excepted from being termed as entertainment expenditure otherwise disallowable under the said provision.;