JUDGMENT
1. This is a reference under Section 256(1) of the Income-tax Act, 1961.
2. The assessee carries on business in Benarsi Goods in the name and style of Brij Raman Dass & Sons at Varanasi. The reference relates to the assessment year 1969-70 with the previous year ending on 20th October, 1968. For the computation of its net income from business, the assessee claimed a deduction of shop expenses totalling Rs. 79,449. This amount included a sum of Rs. 13,653 being the expenditure incurred on providing tea, lassi, jalpan, etc., to the customers. The Income-tax Officer allowed a sum of Rs. 5,000 only out of this expenditure in view of the. provisions of Section 37(2A) of the Act and disallowed the balance. The assessment order was upheld on appeal by the Appellate Assistant Commissioner of Income-tax as also by the Income-tax Appellate Tribunal on second appeal. At the instance of the assessee the Tribunal has referred the following question of law for our opinion;
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming disallowance of the expenses of Rs. 13,653 under Section 37(2A) of the Income-tax Act, 1961 ?"
3. The income-tax authorities as also the Tribunal have treated the expenditure in question as being expenditure in the nature of entertainment expenditure. Section 37(2A) of the Act restricts the allowance of such, expenditure to a maximum of Rs. 5,000 in respect of any previous year which expires after 30th September, J967. The assessee's case is clearly covered by this provision.
4. The first contention of the assessee is that the expenditure in question is not "entertainment expenditure". contemplated by Sub-section (2A) of Section 37, but is an expenditure incurred wholly and exclusively for purposes of business allowable under Section 37(1). There is a fallacy in this argument. Sub-section (2A) of Section 37 does riot contemplate an expenditure of different kind than that contemplated by Section 37(1). Every expenditure falling under Sub-section (2A) of Section 37 must necessarily be an expenditure wholly and exclusively incurred for purposes of business, otherwise such an expenditure would not be allowable at all. Subsection (2A) of Section 37 is not an independent provision, but is a proviso to Section 37(1). It provides that an entertainment expenditure incurred in connection with business should be allowed as deduction up to a maximum of Rs. 5,000 only. No one doubts that an entertainment expenditure incurred upon customers is an expenditure of business nature and is allowable, but the outer limit for such an expenditure has been set by the legislature at Rs. 5,000. If the expenditure was not covered by Section 37, it would not be allowable at all. Any expenditure, for instance, incurred by an assessee on social entertainment will be an expenditure of personal nature and will not be allowable.
5. It was then argued that the expenditure in question is not of the nature of entertainment expenditure. It is urged that "entertainment" does not include the provision of refreshment, but is confined to amusement and "gratification of some sort other than food, meat and drink", Reliance was placed upon the meaning of the word "entertainment" as given in the Stroud's Judicial Dictionary (3rd edition, volume II, page 966). In the same book the word "entertainment" for purposes of Refreshment Houses Act, 1860, has been defined to mean a building kept open for public refreshment, resort, and entertainment. "Entertainment" as there used means "not diversion or amusement, but the provision of food, drink and whatever else might be reasonably required for the personal comfort of guests, for example, cigars, coffee, ginger-beer or lemonade,........" It is clear, therefore, that the word "entertainment" has different meanings for purposes of different Acts. "An entertainment to come within the provisions of the C. P. & Berar Entertainment Duty Act, 1936, must be some exhibition, performance, amusement, game or sport for purposes of entertainment, i.e., for affording some sort of amusement and gratification to those who see or hear it": see Calico Mills Ltd. v. State of Madhya Pradesh. The same meaning probably will be attributable to the word "entertainment" for purposes of U.P. Entertainments and Betting Tax Act, 1937. But we are not dealing with any of those Acts where the word "entertainment" has been given a special meaning. What we have to see is as to what is the meaning of the word "entertainment" for purposes of Section 37(2A) of the Act. In the Income-tax Act, this word has not been defined and we will have to give it its general meaning. An "entertainment expenditure" would, in our opinion, include all expenditures incurred in connection with business on the entertainment of customer and constituents. The entertainment may consist of providing refreshments as in this case or it may consist of providing some other sort of entertainment.
6. In Bentleys, Stokes & Lowless v. Beeson (H. M. Inspector of Taxes) a firm of solicitors incurred expenses in entertaining clients. The entertainment consisted of providing lunch to the clients. It was held that expenditure was incurred wholly and exclusively for purposes of business and was an allowable deduction. The same is the position in the instant case. The petitioner has been providing to its customers refreshments and this constitutes an expenditure in the nature of "entertainment expenditure". The entire expenditure would have been allowed but for the amendment introduced by Section 37(2A) which restricts the allowance of such an expenditure to a maximum limit of Rs. 5,000.
7. We, accordingly, answer the question in the affirmative, in favour of the department and against the assessee. The Commissioner of Income-tax is entitled to the costs which we assess at Rs. 200.