- (1.) THIS reference under s. 256(1) of the IT Act, 1961 (`the Act') is at the instance of the assessee to decide the following question : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the assessment of assessee in the status of URF? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenditure on supply of bare meals to the constituents was entertainment expenditure and was, therefore, liable to be disallowed under s. 37(2B) of the IT Act, 1961?"
(2.) THE relevant assessment year is 1974-75, for which the accounting period ended on 31st March, 1974. THE assessee is a partnership concern and its assessment was made in the status of an unregistered firm. THE Tribunal has upheld the view that the assessee is to be assessed in the status of an unregistered firm. This has given rise to the above quoted first question for our decision. THE other question arises out of the Tribunal's refusal to permit deduction of the expenses incurred in supply of meals, etc. THE assessee's expenditure on customers and constituents is an act of commercial expediency during the course of its business. There is no dispute that the above quoted first question is covered in the present case by a Full Bench decision of this Court in D.B. IT Ref. No. 11 of 1978, dt. 11th Nov., 1986 in respect to the same assessee. That decision is 1987 Tax World 273. It was held by the Full Bench that on these facts the Tribunal was justified in rejecting the assessee's claim for registration of the firm and in upholding the view that the assessee had to be assessed in the status of an unregistered firm. Following that decision that decision the first question is answered in favour of the Revenue and against the assessee. The other question also is covered by the earlier decision of this Court including the decision in Metharam Lekhuram vs. CIT (1986) 54 CTR (Raj) 344 : (1987) 165 ITR 568 (Raj) relating to the same assessee. The view taken therein is in assessee's favour. It has bee held that such expenditure incurred by the assessee is an act of commercial expediency and is a permissible deduction. Following this view the abovequoted question No. 2 is to be answered in favour of the assessee. Consequently, the reference is answered as follows : Answer to question No. 1 : The Tribunal was justified in upholding the assessment of the assessee in the status of an unregistered firm. Answer to question No. 2 : The Tribunal was not justified in disallowing the assessee's claim for deduction of the amount spend on supply of meals, etc., to its customers and constituents. No order as to costs.;