General
General.
37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 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 chargeble 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 aggregated 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 or section 33A or in respect of entertainment expenditure) | at the rate of 1 % 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 ½%; |
(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 ¼%; |
(iv) on the balance of the profits and gains of the business (computed in the manner aforesaid). | nil |
(2A) Notwithstanding 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 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: |
(iii) on the next Rs. 1,20,00,000 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: |
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 first 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, 1967, 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, 1967, 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.
Explanation.—For the purposes of this sub-section and sub-section (2B) "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.
(2B) Notwithstanding anything contained in this section, no allowance shall be made in respect of expenditure in the nature of entertainment expenditure incurred within India by any assessee after the 28th day of February, 1970.
(3) Notwithstanding 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.
(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 an 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.
[As amended by Finance (No. 2) Act, 1971 and Taxation Laws (Amendment) Act, 1970]