JUDGMENT
Only a short question is involved in this tax case reference by the assessee (relating to the assessment year 1978-79), under section 256 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), and against the Tribunals order dated August 30, 1983. The said order of the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) dated October 23, 1982, and restored the order of the Income-tax Officer, which disallowed an expenditure of a sum of Rs. 1,93,417 in computing the total income of the assessee under the Act under section 37(2A) of the Act over and above the permissible limit of Rs. 30,000 thereunder.
Learned counsel for the Revenue justified the order of the Tribunal in view of the Explanation 2 to section 37(2A), which was introduced by the Finance Act, 1983, with retrospective effect from April 1, 1976. Hence, he submits that this tax case has to be decided in favour of the Revenue and the following question referred to this court has to be answered in the affirmative :
“In the facts and circumstances of the case was the Tribunal correct in law in restoring the disallowance of Rs. 1,93,417 made by the Income tax Officer under section 37 of the Income-tax Act, 1961 ?”
On the other hand, learned counsel for the applicant submits that this court should call for a supplementary statement of the case from the Tribunal as to how far the said expenditure was incurred in relation to its customers and how far in relation to its own employees and then decide the tax case. He makes this submission in view of the following expression used in the Tribunals order :
“……. the expenditure under consideration so far as related to customers was entertainment in nature and, therefore, disallowance was called for.”
But, we do not see any justification for calling for a supplementary statement of the case.
As per section 37(2A), which was introduced in section 37 right from April 1, 1976, “entertainment expenditure”, spoken to in that sub-section, is allowed as deduction only up to a limit, notwithstanding what is contained in section 37(1). Up to that limit, the Income-tax Officer has allowed the deduction and disallowed the balance, viz., the abovesaid Rs. 1,93,417. The relevant portion of his order in this regard is as follows :
“13. Entertainment. – The assessee has worked out the entertainment expenses included in the accounts at Rs. 2,23,417. The maximum amount allowable under section 37(2A) is Rs. 30,000. The balance of Rs. 1,93,417 is disallowed under section 37(2A)….. Rs. 1,93,417.”
But, the Commissioner of Income-tax (Appeals) in his order dated October 23, 1982, deleted the said disallowance, observing as follows :
“1. Entertainment. – The Income-tax Officer had disallowed Rs. 1,93,417 under section 37(2A), after allowing only Rs. 30,000. It is the companys contention that expenditure incurred on providing tea, coffee, etc., for the staff or customers would not come under entertainment since such expenditure was not lavish and that compared to the companys turnover and profit, the amount is insignificant.
2. I find that this point has already been decided in the appellants favour both by my predecessor and the Appellate Tribunal for the assessment year 1977-78. In the circumstances and in view of the decision of the Madras High Court in CIT v. Karuppuswamy Nadar and Sons [1979] 120 ITR 140, the disallowance is deleted. Relief is Rs. 1,93,417.”
But, the Tribunal took note of Explanation 2 to section 37(2A). The said Explanation 2 was introduced by the Finance Act, 1983, that is, after the abovesaid order of the Commissioner of Income-tax (Appeals) dated October 23, 1982. But the said Explanation came into operation retrospectively even from April 1, 1976, in view of the relevant language used therein. Therefore, the Tribunal set aside the order of the Appellate Assistant Commissioner and restored the order of the Income-tax Officer and thereby disallowed the said sum of Rs. 1,93,417.
The relevant expression in the said Explanation 2 is as follows :
“For the removal of doubts, it is hereby declared that for the purpose of this sub-section……entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person…. but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work.”
The relevant observation of the Tribunal in its order is as follows :
“The learned Departmental Representative relied on the amendment made to section 37(2A) by way of inserting Explanation 2 by the Finance Act, 1983, retrospectively from April 1, 1976, and urged that the deletion made by the Commissioner of Income-tax (Appeals) was not justified. Learned counsel for the assessee supported the order of the Commissioner of Income-tax (Appeals). After due consideration of the facts and the amendment of law especially Explanation 2, there is no doubt that the expenditure under consideration so far as related to customers was entertainment in nature and, therefore, disallowance was called for. The Income-tax Officer has already allowed deduction under section 37(2A) at Rs. 30,000. We, therefore, restore the disallowance made by the Income tax Officer in this regard as the Commissioner of Income-tax (Appeals) is not justified in deleting the same.”
Inter alia, it is stated in the above passage that learned counsel for the assessee supported the order of the Commissioner of Income-tax (Appeals). But, the said order having been passed on October 23, 1982, itself, could not have taken note of the Finance Act, 1983, and its retrospective effect. Further, it did not seem to have been argued by learned counsel for the assessee before the Tribunal that part of the abovesaid total expenditure of Rs. 2,23,417 was in relation to staff or employees of the assessee and that hence, should be excluded from the term “entertainment expenditure” as explained in Explanation 2 and that only on the balance (after deducting the said part), the prescribed 30 per cent. deduction should have been worked out and that the abovesaid part should have been allowed as deduction under section 37(1) itself. Further, even with reference to employees of the assessee, if the relevant expenditure was on food or beverages provided by the assessee, outside the office, factory or other place of work, the said expenditure would come under “entertainment expenditure”, spoken to in Explanation 2 and not on anything else. The assessee has not chosen to establish these factual features at least when the matter was before the Tribunal. If that is so, the assessee cannot now before this court request for calling for a supplementary statement of case on the abovesaid factual features. It could be safely concluded that no such supplementary statement of case is warranted.
Further, the abovesaid point raised by the assessee cannot be said to be one arising out of the order of the Tribunal. It has also been held in CIT v. Scindia Navigation Co. Ltd. [1961] 42 ITR 589 (SC) that a question of law can be said to arise out of the Tribunals order only if it is dealt with by the Tribunal or is raised before it, though not decided by the Tribunal. Further in Pullangode Rubber and Produce Co. Ltd. v. Commr. of Agrl. I.T. [1970] 76 ITR 7 (SC) also it has been held that a question based on incorrect assumption of facts not found by the Tribunal, cannot be said to arise out of its order. In the present case, we cant assume, in the light of the abovereferred to features, that the expenditure was partly for employees and that too on food or beverages provided inside the place of work.
The net result is, the question referred to this court is answered in the affirmative and in favour of the Revenue. No costs.