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Allahabad High Court · body

2004 DIGILAW 2407 (ALL)

Commissioner of Income-tax v. U. P. Hotels Ltd.

2004-12-01

PRAKASH KRISHNA, R.K.AGRAWAL

body2004
( 1 ) THE Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256 (2) of the Income-tax Act, 1961 (here-inafter referred to as "the Act"), for opinion to this Court : "whether, on the facts and in the circumstances of the case, the order of the Tribunal upholding the deletion for entertainment expenditure is vitiated as it has failed to appreciate the provisions of Section 37 (2b) of the Act correctly ?" ( 2 ) THE reference relates to the assessment years 1976-77 and 1977-78. ( 3 ) BRIEFLY stated the facts giving rise to the present reference are as under : ( 4 ) THE respondent is a public limited company and is engaged in running three five star hotels of international standard, namely, Clarks Amer, Jaipur (Rajasthan), Clark Shiraz, Agra and Clarks avadh, Lucknow. During the course of assessment, the Income-tax Officer, Varanasi, has added a sum of Rs. "1,50,000 in each of the assessment years on account of entertainment of guests and various visitors for which no bills were drawn by the respondents. The case set up by the respondent is that the guest facility is made available only to travel agents, who used to provide business to the respondents, and therefore, if at all there is any income on account of these guests, the same is treated as business expenditure and, therefore the same is not justified. The appellate Assistant Commissioner in appeal has upheld Rs. 10,000 towards expenditure by the respondents in providing free facility to the guests of the general manager. The Revenues appeal before the Appellate Tribunal has failed. ( 5 ) HEARD Sri A. N. Mahajan, learned standing counsel for the Revenue, and Sri A. Upadhyaya, learned Counsel appearing for the respondents. ( 6 ) LEARNED counsel for the Revenue submitted that in view of the provisions of Section 37 (2b) as it stood during the relevant assessment year in question any expenditure incurred by the assessee towards food and lodging is to be treated as expenditure towards entertainment and it has to be disallowed. ( 7 ) LEARNED counsel for the respondent has submitted that the respondent has not incurred any expenditure towards hospitality of travel agents and tourists and it has to abide by the provisions of the International Hotel Convention, 1979. ( 7 ) LEARNED counsel for the respondent has submitted that the respondent has not incurred any expenditure towards hospitality of travel agents and tourists and it has to abide by the provisions of the International Hotel Convention, 1979. Under the agreement, Federation of Hotels and restaurant Association of India and Travel Agents Association of India it has to provide free service to one representative of a travel agent or group of at least 15 travel agents which includes single room accommodation, tour conductor and if the group is on American plan, the bona fide conductor will also be entitled to free meals. He also submitted that no expenditure was incurred by the respondents for providing free facility. The Income-tax Officer has added Rs. 1. 50 lakhs towards assumed expenditure. ( 8 ) HAVING heard learned Counsel for the parties we find that it is not in dispute that the respondents have provided free room and meals to one representative, tourist agent. The provisions of Section 37 (2b) of the Act would not be attracted as the respondent had not incurred any expenditure in providing free room and meals since it was running a hotel industry and no expenditure on this ground has been claimed by it as a deduction. ( 9 ) IN view of the foregoing discussion, we answer the question of law referred to us in the affirmative, i. e. , in favour of the assessee and against the Revenue. However, there shall be no order as to costs. . .