INCOME TAX

Expenditure on food or beverages provided to the employees by employers--Extent to be treated as entertainment--Section 37(2) of the Income-tax Act, 1961--Instructions regarding.

Circular No. 708

Dated 18/7/1995

To

All Chief Commissioners of Income-tax.

All Directors-General of Income-tax.

Sir,

Reference is invited to the Board's Circular No. 644, dated 15th March, 1993 (F. No. 204/10/93-ITA.II) (see [1993] 200 ITR (St.) 226), wherein it was clarified that the expenditure on provision of food or beverages by an employer to the low-paid employees will not be treated as entertainment expenditure within the meaning of the Explanation under section 37(2) of the Income-tax Act, 1961, even if the facility is provided in places other than the place of work, provided the same is provided during the working hours and the expenditure is genuine and reasonable. Representations have since been received for extending the benefit of the circular to all the employees irrespective of salary limits, subject to monetary limits on the expenditure.

2. The Board has since considered the matter and has decided that expenditure up to Rs. 35 per day per employee shall not be treated as in the nature of entertainment if the same is incurred on food or beverages even outside the place of work, but during working hours subject to proof of genuineness of the expenditure. In case the expenditure exceeds the above limit, only the excess over Rs. 35 per day per employee shall be treated as entertainment in nature within the meaning of the Explanation under section 37(2) of the Act. In the hands of the employees, however, the amount shall be treated as income subject to the provisions of section 17 of the Act.

3. This circular shall apply with reference to the expenditure incurred during the financial year 1995-96 relevant to the assessment year 1996-97 and subsequent years.

4. This may be brought to the notice of all the Assessing Officers in your region.

Yours faithfully,

(Sd.) H. K. Choudhary,

Under Secretary to the Government of India.