JUDGMENT BY THE COURT:
At the instance of the assessee, the Tribunal, Allahabad Bench, Allahabad has referred under s. 256(1) of the IT Act, 1961, the following question of law for the opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance of Rs. 5,975, Rs. 9,750 and Rs. 4,506 being the guest house expenses, general charges and entertainment expenses respectively? "
2. The dispute pertains to the asst. yr. 1974-75. At the outset, we may mention that out of the three amounts mentioned in the q~estion the amount of Rs. 9750 had not been dealt with by the Tribunal in its order passed in the appeal giving rise to this reference. Accordingly, we will refrain ourselves from dealing with that amount inasmuch as that part of the question does not arise out of the order of the Tribunal.
Now, coming to the other two amounts, it appears that the assessee had claimed an amount of Rs. 10,975 as guest house expenses and Rs. 4,506 as entertainment expenditure. Both the amounts were disallowed and added back to the income of the assessee by the ITO with the remarks "being in the nature of entertainment expenses to be disallowed". When the matter came for consideration in appeal before the CIT(A), he sustained the addition of Rs. 4,506 by saying that he was completely fettered by a decision of this Court in the case of Brij Raman Dass & Sons vs. CIT 1975 CTR (All) 223 : (1976) 104 ITR 541 (All)..
As regards the other amount of Rs. 10,975 the addition was sustained to the extent of Rs. 5,975 only by an estimate on the view that an amount to the extent of Rs. 5,000 must have been incurred in relation to the employees of the company and consultants who may be occupying the guest house occasionally and as such, the expenditure to that extent was permissible under the head 1 staff welfare expenditure'. The assessee carried the matter further to the Tribunal where the appellate order was affirmed on the finding that the decision of this Court in Bril Raman Dass (supra) was binding on the Tribunal though a contrary decision of another High Court was available on which the reliance was placed by the assessee.
3. We have heard learned counsel for the parties.
The decision in Bii/ Raman Dass (supra) has been overruled by the Supreme Court in C1T vs. Patel Bros. & Co. Ltd. (1995) 126 C7R (SC) 132 : (1995) 215 ITR 165 (SC) . The Supreme Court has held that the expenditure incurred in extending customary hospitality by offering ordinary meals as a bare necessity would not be 'entertainment expenditure' and such an expenditure would be permissible deduction under s. 37(2A) of the IT Act, 1961 as it stood prior to Ist April, 1976 when ExpIn. 2 was brought on the statute book by retrospective amendment made in the year 1983 of sub-s. QA) of s. 37 of the IT Act.
4. From a perusal of the order of the Tribunal it is apparent that there is no discussion about the nature of entertainment on which the amount in dispute is incurred by the assessee. For that matter, there is no discussion either in the assessment order or in the order passed by the CIT(A). In absence of the finding about the nature of entertainment expenses, it is difficult to decide the question referred to this Court one way or the other The legal position has been settled by the Supreme Court in the case of Patel Bros. (supra). Whether the entertainment expenses were incurred to meet the bare necessity or an ordinary hospitality and, therefore, such expenses were excluded from the expression 'entertainment' as held by the Supreme Court, could only be decided when a proper finding of fact has been recorded by a competent authority entitled to go into this question.
In these circumstances, the question referred to this Court is returned bark to the Tribunal who shall decide the question arising in the case afresh in the light of the observations made in this judgment and the law laid down by the Supreme Court and in accordance with law. It is ordered accordingly.
OPEN