COMMISSIONER OF INCOME TAX Vs. PATEL BROTHERS AND COMPANY LIMITED

JUDGEMENT

(1.) SINCE the questions referred to us in both these references are identical, we intend to dispose of both these references by this common judgment.

(2.) IN IT Ref. No. 151 of 1974, the relevant assessment years are 1969 70 to 1971 72, the corresponding previous years being the years ending on September 30, 1968, September 30, 1969 and September 30, 1970, respectively. The assessee company is a limited company. The assessee company provides meals to its workers as well as to the workers of its associate firm carrying on business under the name and style of Patel Brothers Oil Mills. It is an admitted position that the farmers come to deliver goods such as cotton, groundnut, rice and pulses to the assessee company and it is claimed by the assessee company that as a course of its business it is customary and out of commercial expediency it was necessary for it to provide meals to its farmer customers. The assessee company on that count, therefore, claimed kitchen expenses of Rs. 22,301, Rs. 25,979 and Rs. 28,620, respectively, for the aforesaid assessment years. The ITO disallowed the expenditure to he extent of Rs. 10,101, Rs. 12,979 and Rs. 17,305, corresponding to the expenses incurred on account of providing meals to the farmer customers for the aforesaid respective assessment years, as, in the opinion of the ITO, in the absence of any specific provision in the matter of entertainment expenses, he found it difficult to give any concessional treatment to the assessee company in so far as it entertained by providing meals though it was most ordinary in nature and in no way could it be said to be lavish. The assessee company, being aggrieved by this order of partial disallowance of the ITO, went in appeal before the AAC, who held that the expenditure incurred by the assessee company was not entertainment expenditure covered by s. 37(2) of the Act for the simple reason that the expenditure incurred was for providing meals which were the bare necessity having regard to the nature of the business and were not such as to provide entertainment or amusement. He, therefore, directed the ITO to delete the aforesaid amounts from the respective assessments of profit and gains of the assessee company. The ITO, therefore, carried the matter in appeal to the Tribunal. The Tribunal, however, following its earlier decision in Income tax Appeals Nos. 1366 to 1367 of 1972 73 in the matter of ITO vs. Gautamkumar Rajendrakumar, out of which IT Ref. No. 64 of 1974 arises, confirmed the order of the AAC. The CIT has sought this Reference No. 151 of 1974 and the Tribunal has referred to us the following two questions :

(3.) AT the time of hearing of these two references it was strenuously urged on behalf of the Revenue that the entire approach of the Tribunal was wrong, inasmuch as it lost sight of the legislative history of the provisions which clearly indicated that the legislature intended to curb gradually the expenditure of providing hospitality of any kind at the cost of public exchequer. According to the Revenue, the Tribunal took a very narrow view in restricting the width and import of the term "entertainment" in S. 37(2) to those activities which are more or less lavish in scale or wasteful in nature. It was strenuously urged on behalf of the Revenue that the term "entertainment" should be liberally construed so as to include hospitality of any kind so as to effectuate fully the legislative intent expressed by the relevant provisions.