- (1.) THIS reference under Section 250(1) of the Income-tax Act, 1961, at the instance of the assessce is to answer the following questions of law : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred by the assessee-mills in providing simple meals, breakfast and tea to its customers and suppliers, etc., coming from outside, as customary expenditure were in the nature of entertainment expenses and hence not allowable in view of Section 37(2B) of the Income-tax Act, 1961 ? (2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that surtax liability is not an expenditure allowable as business expenditure and not an expenditure wholly and exclusively incurred for the purposes of its business ?"
(2.) THE relevant assessment year is 1975-76, for which the relevant accounting period ended witn the calendar year 1974. THE assessee is a public limited company having its factory at Pali. During the relevant period, the assessee incurred expenses in providing soft drinks, snacks and meals, etc., to its customers and suppliers as an act of commercial expediency for the purposes of the business. THE assessee claimed deduction of the same which has been disallowed by the Tribunal. Similarly, the company claimed that its surtax liability is an expenditure incurred wholly and exclusively for the purpose of its business on account of which the same is also a permissible deduction not hit by the prohibition contained in Section 40(a)(ii) of the Income-tax Act, 1961. This contention also has been rejected by the Tribunal. Hence, this reference. Both the above questions are covered by decisions of this court. We have, therefore, to answer the same accordingly. The first question is concluded in favour of the assessee by a catena of decisions taking the view that such expenditure incurred in providing soft drinks, snacks, etc., to customers is a permissible deduction not hit by Section 37(2B) of the Income-tax Act, 1961. The second question is covered by one of our recent decisions in favour of the Revenue. It has been held in D. B. I. T. Ref. No. 67 of 1979 decided on 4-8-1987 (Associated Stone Industries (Koto,) Ltd. v. CIT [1988] 170 1TR 653) that the surtax liability is a tax on profits and gains of the business and is, therefore, covered by Section 40(a)(ii) of the Act. Consequently, the reference is answered as follows : 1. The Tribunal was not justified in rejecting the assessee's claim for deduction of the expenses incurred in providing soft drinks, snacks and simple meals to its customers and suppliers. 2. The Tribunal was justified in holding that surtax liability is not an allowable deduction as business expenditure.
(3.) NO costs.;