Realizing the fact that such payments are often made in the course of entertainment of costumers, clients or constituents the Board has desired appropriate record making in this regard. As part of such details it is desired to maintain the following information;
a) Date of entertainment;
b) Place of entertainment;
c) Amount paid;
d) No. of persons entertained;
e) Nature of entertainment;
f) Purpose of entertainment.
The new rule does not impose any restrictions on residential entertainment. As such the employees may entertain guests at their residence too provided sufficient record is kept in the manner above.
In the fourth column the numeric number of persons entertained would be sufficient.
In the fifth column the kind of entertainment may be specified. For instance meals, gifts (other than free samples), Liquor etc. Further in the Explanation (ii) of sub rule entertainment to include hospitality of any kind.
In the last column it is desired to mention the necessity of such expenditure in which case it may be kept in mind that such entertainment costs was incurred only for extending customary courtesy to persons who are connected with the assessee’s business be they are vendors, customers, foreign guests, advisors/consultants, auditor’s etc.
As regard the acts or practice of being hospitable in the sense of providing meals, drinks or other wants of the persons entertained, whether they may be employees, workmen or officers, servants or agents in the service of an assessee, either as an express or implied condition of service, that would not amount to acts of entertainment. Before the Delhi High Court in the case of Commissioner of Income-tax Vs. Modern Bakeries India Limited (249ITR465) the revenue has conceded that the expenditure in connection with the conference of the assessee’s managers and on internal meetings is legitimate business expenditure not involving any entertainment.
There must be a sufficient authorization of such expenditure along with bills etc. and there must bear a clear joint declaration that the amount is incurred wholly and exclusively for business purposes.
In the case of membership of sport clubs, health resorts or any other recreation clubs it is desired that such facilities will not be charged to perquisite if they are availed at the employer’s premises so as to be available to all the employees. Since there is no such restriction as such in the rule per se the benefit of doubt can be obtained by the employer’s in that regard even in respect of memberships taken with outside clubs. Corporate memberships of clubs/credit cards would be tax-free.