1. Of the claim made by the assessee-company in the assessment year 1977-78 (previous year ending on 31-3-1977) under the head 'Sales promotion' the ITO disallowed Rs. 78,918, being in his opinion, in the nature of entertainment expenditure. On appeal, the assessee restricted the claim under that head to Rs. 33,848. The Commissioner (Appeals) held that out of the said amount of Rs. 33,848, Rs. 5,000 should be treated as entertainment expenses and the balance of Rs. 28,848 should be treated as sales promotion expenses. He, thus, allowed the deduction of Rs. 33,848 as business expenditure under Section 37 of the Income-tax Act, 1961 ('the Act'). Aggrieved by that order, the department is in appeal to the extent of Rs. 28,848 allowed as sales promotion expenses.
2. The assessee was engaged in arranging package tour of foreign tourists. They were taken to different places of interest in the country and at the end of the tour get together was arranged with the tourists for exchange of views between them and the management of the assessee-company. Therein the tourists were served with drinks and food. Besides the items of drinks and food the expenditure was also incurred on shamianas and light, etc.
3. Contention of the learned departmental representative is that the entire amount was. spent on entertainment of the tourists and, therefore, deduction of it should not have been allowed. We could not get advantage of hearing the assessee since none appeared for it.
4. In view of restriction placed by Sub-section (2A) of Section 37 on allowability of the entire expenditure on entertainment, a simple plea that it was incurred wholly and exclusively for the purpose of the business cannot help the asssessee. What is to be seen for allowability of the entire expenditure is whether the expenditure in the context of the facts and circumstances of the case can be said to fall out of the ambit of entertainment. The Hon'ble Gujarat High Court in the case of CIT v. Patel Bros. & Co. Ltd. [1977] 106 ITR 424 after having made reference to certain dictionaries observed : "It is, therefore, clear to us that the dictionary meaning of the term 'entertainment' is to receive and treat with hospitality which broadly means receiving and entertaining strangers or guests in a friendly, generous and liberal way....These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hospitable is providing for the wants of a guest in a liberal and generous manner". (p. 434) The legislation by inserting Explanation to Sub-section (2A) of Section 37 by the Finance Act, 1983 with retrospective effect from 1-4-1976 made it clear that 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade.
5. The Act is not merely concerned with 'entertainment' simpliciter.
Entertainment of any person unconnected with business has no relevance.
In order that an expenditure-whether on entertainment or not-to be considered for its allowability, it should primarily be wholly and exclusively for the purpose of business. In fact, hospitality of a businessman as such, does contain an element of commerce. What is to be seen is as to whether the said hospitality is an incident of a business or the part of the business itself. In the former case it is entertainment and in the latter it is a sort of sale promotion. Take an example of a hotelkeeper, who serves an extra dish to his customers and makes special decoration on a particular occasion without charging extra money for that, irrespective of any express or implied contract or custom or usage of the trade. Will it be called an expenditure on entertainment Will it not be same as a dealer in car giving spare parts to a purchaser of a car, without charging extra money for those parts It is, therefore, essential to examine whether the hospitality extended partook the character of business itself or was incidental to the business.
6. Coming to the facts of the instant case, we find that the business of the assessee-company was to arrange package tours of foreign tourists. Naturally, it had to furnish accommodation and to provide food and amusement to the tourists. In connection with that business it arranged at the end of the tour a get together with the tourists and made expenditure on 'shamiana', light, drinks and food, etc. Extra expenditure thereon would, therefore, be a sort of sales promotion. In this view of the matter. in our judgment, the entire amount of Rs. 33,848 should be treated as expenditure on 'sales promotion'.
7. The learned Commissioner (Appeals) treated Rs. 5,000 out of the said expenditure as expenditure on entertainment for which we do not find any basis. On the other hand, by doing so he has contradicted his own finding that the balance of Rs. 28,848 should be treated as sales promotion expenses. If the amount of Rs. 33,848 contained any element of entertainment there is no foundation for carving out Rs. 5,000 only as expenditure on entertainment. On that premises, the entire amount should have been taken as expenditure on entertainment. But as discussed above, the entire amount is expenditure on sales promotion.
We, therefore, find no merit in the appeal.