Ajtt K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, relating to the assessment year 1976-77, the following question of law has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that expenditure of Rs. 9,487 not being an entertainment expenditure within the meaning of Section 37(2B) of the Income-tax Act, 1961, was an admissible deduction under Section 37(1) of the said Act is computing the assessee's total income for the assessment year 1976-77 "
(2.) Shortly stated, the facts are that the assessee is a company carrying on the business as Cargo Surveyors and Analytical Chemists and received fees from pre-shipment inspection and testing of quality of jute and jute goods on behalf of the buyers from different European countries and also of local buyers. In addition, during the year ended on December 31, 1975, relevant to the instant assessment year 1976-77, the assessee received agency commission of Rs. 50,770 from Coal Inspecting Service, Dhanbad, and Indo Cargo Surveyors, Cochin, for carrying out inspecting and testing work at Dhanbad and Cochin as company's agents. Net profit for the instant year was Rs. 9,68,413 whereas the total income was worked out at Rs. 10,38,000. In the assessment, a sum of Rs. 24,329 was disallowed under Section 37(2B) of the Income-tax Act, 1961, as entertainment expenditure, That apart, the Income-tax Officer disallowed business promotion expenses of. Rs. 9,487 which were on account of a dinner party at Grand Hotel, Calcutta, for inviting the buyer's representatives who came from different European countries to discuss matters relating to quality control of jute goods. Experts from different jute mills were also invited. The Income-tax Officer treated the expenditure also as entertainment expenditure falling under Section 37(2B) of the Income-tax Act. On appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance.
(3.) Being aggrieved, the matter was taken in second appeal to the Appellate Tribunal which decided the issue against the Revenue holding that the expenditure, in dispute was not in the nature of entertainment expenditure which should be allowed under Section 37(1) of the Act.;