DWARKA PRASAD, J. - (1.) THESE three applications arise in similar circumstances and raise common questions as they relate to the assessments of the same assessee, M/s Yadav Transport Service, Nasirabad, and as such they are disposed of by a common order.
(2.) THE assessee, M/s Yadav Transport Service, is a transporter and in the course of assessments of the assessee in respect of the asst. yrs. 1976 -77, 1977 -78 and 1978 -79, the assessee claimed allowance of expenditure incurred on account of entertainment, office and other miscellaneous expenses in the head office and various branches. The ITO disallowed part of the expenditure incurred by the assessee on account of entertainment expenses, office expenses and miscellaneous expenses. On appeal, the CIT (Appeals), Rajasthan, Jaipur, sustained the disallowance of entertainment expenses, office and miscellaneous expenses to a certain extent and reduced the amount disallowed by the ITO. Before the Tribunal, the appeals relating to the aforesaid three assessment years were heard together and the only objection raised on behalf of the Revenue was that entertainment expenses should be wholly disallowed, because of the provisions contained in s. 37(2A) and S. 37(2B) of the INCOME TAX ACT, 1961. The Tribunal did not accept the contention of the Department and held that the expression " entertainment expenditure " should be construed in a liberal manner and as such the claims of the assessee relating to entertainment expenditure allowed by the CIT were upheld by the Tribunal by its order dated May 12, 1981. The Tribunal dismissed the application of the CIT under S. 256(1) of the Act on the ground that no referable question of law arose out of the order of the Tribunal dated May 12, 1981, on the ground that the Supreme Court has upheld the finding of the Tribunal that the expenditure of the nature of providing tea, coffee and other customary hospitality on a moderate scale would constitute " expenditure in the nature of entertainment expenditure " in the case of CIT vs. Allied Publishers Private Ltd. Hence these applications under S. 256(2) of the Act have been moved by the CIT, Jaipur, praying that the Tribunal be directed to state the case and refer the following question of law arising out of its order dated May 12, 1981, to this Court for its opinion : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the CIT (Appeals) reducing the disallowance of entertainment expenses, office expenses and miscellaneous expenses from Rs. 35,834 to Rs. 21,000 (for asst. year 1976 -77), from Rs. 35,242 to Rs. 20,000 (for asst. year 1977 -78) and from Rs. 34,858 to Rs. 19,000 (for asst. yr. 1978 -79) by construing the expression 'entertainment expenditure' occurring in S. 37(2A) and 37(2B) of the IT Act in a liberal manner ?"
(3.) IT may be pointed out that after the Tribunal rejected the application of the Department under s. 256(1) of the Act refusing to make a reference to this Court, the provisions of S. 37 of the Act have been amended by the Finance Act, 1983, with retrospective effect from April 1, 1976. Explanation 2 has been added to sub -s. (2A) of S. 37 and it reads as under : "Explanation 2. -For the removal of doubts, it is hereby declared that for the purposes of this sub - section and sub -s. (2B), as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other places of their work. " Sub -s. (2B) of S. 37, which was inserted by the Finance Act of 1970 w.e.f. April 1, 1970, was deleted w.e.f. April 1, 1977, and a new sub -s. (2B) was introduced by the Taxation Laws (Amendment) Act, 1978, w.e.f. April 1, 1979, but the newly inserted sub -s. (2B) is not relevant for the purpose of the case in hand, as it does not relate to entertainment expenditure. It may be observed that so far as office and miscellaneous expenses are concerned, no argument was advanced before the Tribunal and as such the mention of office and miscellaneous expenses, a question which is sought to be referred, is not permissible, as the question was neither raised before nor argued nor considered by the Tribunal. The only question which was raised and decided by the Tribunal related to allowing of expenditure of the nature of entertainment expenditure. After the addition of Explanation 2 to sub -s. (2A) of S. 37 of the Act, it is absolutely clear that every kind of hospitality extended by the assessee to any person except his employees by providing food or beverages or in any other manner whatsoever would be includible in the expression " entertainment expenditure " occurring in sub -s. (2A) of S. 37 of the Act. Thus, if the assessee supplied drinks, food or other hospitality to the customers by reason of any express or implied contract or even on account of Custom or usage of trade, the same would constitute " entertainment expenditure " within the meaning of sub - S. (2A) of S. 37 and would not be excludible under S. 37(1) of the Act from the profits of the assessee under the head " Profits and gains of business or profession";