General
General.
37. 84(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 85[* * *] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
(2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:—
| (i) on the first Rs. 10,00,000 of the profits and gains of the business (computed before making any allowance under section 33 86[or section 33A] or in respect of entertainment expendi- ture) | at the rate of 1 per cent or Rs. 5,000, whichever is higher; |
| (ii) on the next Rs. 40,00,000 of the profits and gains of the business (computed in the manner aforesaid) | at the rate of 87[½] per cent; |
| (iii) on the next Rs. 1,20,00,000 of the profits and gains of the business (computed in the manner aforesaid) | at the rate of 88[¼] per cent; |
| (iv) on the balance of the profits and gains of the business (computed in the manner aforesaid) | nil. |
89[(2A) Not with standing anything contained in sub-section (1) or sub-section (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder:—
| (i) on the first Rs. 10,00,000 of the profits and gains of the business or profession (computed before making any allowance under 90[section 32A or] section 33 or section 33A or in respect of entertainment expenditure) | at the rate of ½ per cent or Rs. 5,000, whichever is higher; | |
| (ii) on the next Rs. 40,00,000 of the profits and gains of the business or profession (computed in the manner aforesaid) | at the rate of ¼ per cent; | |
| 91 [(iii) on the balance of the profits and gains of the business or profession (computed in the manner aforesaid) | at the rate of 1/8 per cent, |
so, however, that the allowance shall in no case exceed Rs. 50,000 :]
Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed—
(a) in the case of a company—
(i) in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub-section (2), the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year;
(ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 196V, and ending with the last day of the previous year bears to the total number of days in the previous year;
(b) in any other case—
(i) in respect of such expenditure incurred before the 1st day of October, 1966, the amount admissible under sub-section (1).;
(ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year.]
92[93[Explanation 1] : For the purposes of this sub-section 94[***], "entertainment expenditure" includes—
(i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after- the 29th day of February, 1968 ;
(ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person.]
95[Explanation 2 : For the removal of doubts, it is hereby declared that for the purposes of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, "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, 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.]
96[(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.]
97[(3) 98Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.]
(3A) 99[***]
(3B) 1[***]
(3C) 2[***]
(3D) 3[***]
4[(4) Notwithstanding anything contained in sub-section (1) or sub-section (3),—
(i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as "guest- house") ;
(ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in a guest-house:
Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest-house:
Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house—
(a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him ; and
(b) is intended for the exclusive use of such employees while on leave.
Explanation : For the purposes of this sub-section,—
(i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and
(ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation.]
5[(5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest-house within the meaning of sub-section (4).]
84. See rules 9A and 9B.
85. "and section 80VV", which was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, omitted by the Finance Act, 1985, w.e.f. 1-4-1986.
86. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
87. Substituted for "¾" by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.
88. Substituted for " ½" by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.
89. Inserted by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967.
90. Inserted by the Finance Act, 1976. w.e.f. 1-4-1976.
91. Substituted for the following sub-clauses (iii) and (iv) by the Finance Act, 1983, w.e.f. 1-4-1984 :
| "(iii) on the next Rs. 1,20,0.0,000 of the profits and gains of the business or profession (computed in the manner aforesaid) | at the rate of 1/8 per cent; | |
| (iv) on the balance of the profits and gains of the business or profession (computed in the manner aforesaid) | nil:" |
92. Inserted by the Finance Act, 1968, w.e.f. 1-4-1968.
93. Numbered as Explanation 1 by the Finance Act, 1983, with retrospective effect from 1-4-1976.
94. "and sub-section (2B)" omitted by the Finance Act, 1976, w.e.f. 1-4-1977. Earlier, this expression was inserted by the Finance Act, 1970, w.e.f. 1-4-1970.
95. Inserted by the Finance Act, 1983, with retrospective effect from 1-4-1976.
96. Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4-1979. Originally, the sub- section was inserted by the Finance Act, 1970, w.e.f. 1-4-1970 which was later on omitted by the Finance Act, 1976, w.e.f. 1-4-1977.
97. Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.
98. See rules 6AC, 6B and 6D.
99. Omitted by the Einance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:
'(3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head "Profits and gains of business or profession".'
Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.
1. Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3B), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:
"(3B) The expenditure referred to in sub-section (3A) is that incurred on—
(i) advertisement, publicity and sales promotion ; or
(ii) running and maintenance of aircraft and motor cars ; or
(iii) payments made to hotels.
Explanation : For the purposes of sub-sections (3A) and (3B),—
(a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act;
(b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities;
(c) expenditure on running and maintenance of aircraft and motor cars shall include,—
(i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire;
(ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also."
Original sub-section, was inserted by the Finance Act, 1978, w.e.f. 1-4-1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.
2. Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3C), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:
"(3C) Nothing contained in sub-section (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of section 80B, or a person (other than a company) who is resident in India in respect of expenditure incurred wholly and exclusively on—
(i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business;
(ii) running and maintenance of motor cars in any branch, office or agency maintained outside India for the promotion of the sale outside India of such goods, services or facilities."
Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.
3. Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3D), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:
"(3D) No disallowance under sub-section (3A) shall be made—
(i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft;
(ii) in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars."
Original sub-section, as inserted by the Finance Act, 1978, w.e.f. 1-4-1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.
4. Inserted by the Finance Act, 1970, w.e.f. 1-4-1970.
5. Inserted by the Finance Act, 1983, with retrospective effect from 1-4-1979.
[AS AMENDED BY THE FINANCE ACT, 1988]