1. The Income-tax Appellate Tribunal, Allahabad, has referred the following two questions of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the opinion to this Court:
1. Whether, on facts and in law, the Tribunal was correct in holding that the expenditure on distribution of sweets, dry fruits and gift packs on the eve of Deewali being business expenditure could not be allowed under Section 37 of the Income-tax Act but its allowability was to be restricted under Section 37(2A) of the Act being expenditure in the nature of entertainment?
2. Whether the Tribunal was correct in holding that the expenditure of Rs. 99,586 incurred by the company in making donation in cash and kind to educational institution for development of play ground with Deer Park containing a sign board of the donors could not be allowed as deduction under Section 37 of the Act?
2. Briefly stated the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1983-84.
3. The applicant claimed expenses amounting to Rs. 42,491 as sales promotion expenses and a sum of Rs. 89,586 towards advertisement expenses. The Assessing Officer had computed the profits and gains of the business at Rs. 56,68,516 and allowed entertainment expenses at Rs. 15,835 thereby making a disallowance of Rs. 26,656. The assessing authority had also disallowed the claim in respect of the advertisement expenses amounting to Rs. 99,586. It may be mentioned here that in so far as the sales promotion expenses are concerned the expenditure related to the tickets purchased, lunches and dinners on officers and engineers of different State Electricity Boards and Deewali expenses of Rs. 23,295. The advertisement expenses comprised of Rs. 45,000 given to the Vardhman Academy and Rs. 44,586 an expenditure incurred on material provided to the said Vardhman Academy during the last three days of the accounting year. The disallowance was upheld by the Commissioner of Income-tax (Appeals). Feeling aggrieved the applicant preferred a second appeal before the Tribunal. The Tribunal has also affirmed the order passed by the Commissioner of Income-tax (Appeals).
4. We have heard Shri Suyash Agrawal, learned Counsel for the applicant and Shri A.N. Mahajan, learned standing counsel for the Revenue. Learned Counsel for the applicant submitted that Explanation 2 which was inserted with effect from April 1, 1976, by the Finance Act, 1983, widened the scope of the words 'entertainment expenditure' as expenses and, therefore, the limits provided under Sub-section (2A) of Section 37 of the Act would not be applicable. So far as the advertisement expenses are concerned he submitted that the applicant had incurred an expenditure for advertisement and in fact a board of the applicant's company was also installed in the deer park of Vardhman Academy. Thus, the expenditure was liable to be allowed. Learned standing counsel, however, submitted that after insertion of Explanation 2 to Section 37 of the Act, the scope of entertainment expenditure has been widened and, therefore, hospitality of every kind is to be included in the word 'entertainment' and the expenditure has to be limited as provided under Sub-section (2A) of the Act. So far as advertisement expenses are concerned he submitted that the Tribunal has categorically found, as a fact, that the applicant had treated the sum of Rs. 45,000 given by it to Vardhman Academy as charity/donation and it was only on April 30, 1982, i.e., the end of the accounting period, the said amount was transferred to the advertisement account. Further, the Tribunal had also found that the material amounting to Rs. 44,586 was given in last three days of the accounting period and the Tribunal has found that the assessee could not have published or advertised its name through the medium of the board. The Tribunal has further found that the real expenditure was on the development of the deer park and the advertisement content of the expenditure, if at all, was marginal and peripheral. He submitted that the finding recorded by the Tribunal has not been specifically challenged by means of raising specific question therefore on the basis of the findings recorded by the Tribunal the expenditure in question cannot be termed as advertisement expenditure.
5. Having heard learned Counsel for the parties we find that after the insertion of Explanation 2 in Section 37(2A) of the Act the definition of the words 'entertainment expenditure' has been widened and the words 'entertainment expenditure' which normally did not include hospitality of other normal courtesies, as held by the apex court in the case of CIT v. Patel Brothers and Co. Ltd. : [1995]215ITR165(SC) had been included by giving an extended meaning. Thus, the expenditure incurred on tickets purchased by the applicant and dry fruits and sweets for Deewali and expenditure incurred on lunches and dinners to officers and engineers of different State Electricity Boards would be covered under the term 'entertainment expenditure' and the limit provided under Sub-section (2A) of Section 37 of the Act would be attracted.
6. So far as the expenses incurred on alleged advertisement are concerned we find that the applicant had initially put the amount of Rs. 45,000 given to the Vardhman Academy in the charity/donation account and only on the last date of the accounting year it had transferred the same to the advertisement account. The Tribunal had rightly drawn an inference that from the very beginning the intention was to give charity/donation and not advertisement. So far as the amount of Rs. 44,586 given in kind is concerned we find that the Tribunal has recorded a categorical finding that the material was given in the last three days and it was not possible to publish or advertise the name through medium of a board and real expenditure was on the development of a deer park the advertisement content being marginal and peripheral. On the finding recording by the Tribunal which has not been specifically challenged by raising a specific question, we are of the considered opinion that the Tribunal has not committed any error in upholding the disallowance.
We accordingly answer both the questions referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee However, there shall be no order as to costs.