Judgment:
Y.V. Anjaneyulu, J.
1. This reference raises a short but interesting question concerning the effect of section 37(3A) of the Income-tax Act, 1961 ('the Act', for short). For the assessment year 1979-80, the assessee incurred, inter alia, the following expenditure on advertisement, publicity and sales promotion :
Rs.1. Advertisement in newspapers 3,2742. Amount paid to M/s. Mahaveer Trading Co., 1,20,921for articles costing less than Rs. 50 each3. Glasses purchased from Black Diamond Glass2,132 doz. at the rate of Rs. 23/20.10 per doz. 50,658------------1,74,853------------ (There is an item of Rs. 80,000 which was originally included under this head, but it was agreed eventually that this sum of Rs. 80,000 was covered by section 37(3) of the Act.)
2. The assessee claimed deduction of the aforesaid sum in its entirety while computing its income for the assessment year under consideration. The Income-tax Officer held that the expenditure being an expenditure on advertisement, publicity, and sales promotion, it is liable to be governed by the limits specified in section 37(3) of the Act read with rule 6B of the Rules. The Income-tax Officer first quantified the expenditure to be allowed on the above exceeded Rs. 40,000. He then applied the provisions of section 37(3A) of the Act and worked out the expenditure qualifying for deduction. He eventually disallowed a sum of Rs. 38,228.
3. The assessee filed an appeal to the Commissioner of Income-tax (Appeals). The contention urged before the Commissioner was that the expenditure incurred on presentation articles was less than Rs. 50 each and in terms of rule 6B, the entire expenditure should be allowed. There was no difficulty in accepting this part of the claim of the assessee, because the presentation articles supplied by Mahaveer Trading Company cost less than Rs. 50 each and also the cost of glasses purchased from Black Diamond Glass per dozen. But then the Commissioner held that even though the expenditure incurred fell within the limits specified in rule 6B and no amount fell to be disallowed in terms of section 37(3) of the Act, still the further limits specified in section 37(3A) of the Act would apply. Doing so, the Commissioner found the order of the Income-tax Officer to be in order and declined to interfere in the matter.
4. The assessee preferred a second appeal to the Tribunal. Before the Tribunal, the assessee reiterated the sum argument and it was accepted by the Tribunal. The Commissioner is aggrieved by the decision of the Tribunal and accordingly sought a reference to this court of the following question of law :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the advertisement expenditure falling under section 37(3) of the Income-tax Act read with rule 6B of the Income-tax Rules does not come within the ambit of the words 'aggregate expenditure' or 'adjusted expenditure' within the meaning of section 37(3A) of the Income-tax Act, 1961 ?'
5. We have heard standing counsel for the Revenue and Sri A. Satyanarayana, learned counsel for the assessee. Having carefully looked into the provisions, we feel that the stand taken by the Income-tax Commissioner and the Income-tax Officer is correct and the Tribunal is in error. For the sake of reference, we may extract below the relevant provisions in the Act of the Rules :
'S. 37. (1) Any expenditure (not being expenditure of the nature described in section 30 - 36 and section 80VV 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'...
(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.
(3A) Notwithstanding anything contained in sub-section (1) but without prejudice to the provisions of sub-section 2(B) or sub-section (3) where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely :-
(i) where such aggregate expenditure does 10% of the adjusted not exceed 1/4 per cent. of the turnover expenditure; or, as the case may be, gross receipts of the business or profession
(ii) where such aggregate expenditure 12-1/2% of the exceeds 1/4 per cent. but does not exceed adjusted expenditu- 1/2 per cent. of the turnover or, as the re; case may be, gross receipts of the business or profession
(iii) where such aggregate expenditure 15% of the adjust- exceeds 1/2 per cent. of the turnover ed expenditure. or, as the case may be, gross receipts of the business or profession
Explanation - For the purposes of this sub-section, -
(a) 'adjusted expenditure' means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under sub-section (1) and as further reduced by so much of such expenditure as is not allowed under sub-section 2(B) or sub-section (3) ;
(b) 'turnover' and 'gross receipts' mean turnover or gross receipts, as the case may be, as reduced by any discount or rebate allowed by the assessee.'
6. The intention of the Legislature was to restrict the colossal expenditure by taxpayers on advertisement, publicity and sales promotion. To achieve that object, provisions were incorporated in section 37 of the Act limiting the expenditure on these items. The limits are specified in the Rules prescribed, vide rule 6B. Section 37(3) authorises an allowance of expenditure on these items as per the quantification made under rule 6B. If the matter ended there, there would have been no problem. But then, section 37(3A) was devised in order to impose a further limit on the aggregate expenditure on account of the above items. Where, for instance, the aggregate expenditure to be allowed under section 37(3) read with rule 6B was less than Rs. 40,000, the assessee is entitled to claim full deduction of the sum. Where, however, the aggregate expenditure to be allowed under section 37(3) read with rule 6B exceeded the sum of Rs. 40,000, section 37(3A) imposes a further limitation. We have extracted above section 37(3A) and it is not necessary to reiterate the details concerning the limitation.
7. The contention of Sri A. Satyanarayana, learned counsel for the assessee is that as far as the expenditure qualified under section 37(3) read with rule 6B is concerned, it is not subjected to any further limitation under section 37(3A), as is evident from the use of the expression in section 37(3A) to the effect that it is without prejudice to the provisions contained in section 37(3). Mr. Satyanarayana, therefore, contends that the entire extent of expenditure which is allowable under section 37(3) read with rule 6B should be allowed and it should not be subject to the further limitation specified in section 37(3A) of the Act. We are unable to agree. The further limitation specified in section 37(3A) are without prejudice to the provisions contained in section 37(3). By saying so, the Legislature did not intend to ensure that whatever expenditure is allowable under section 37(3) is allowed without subjecting the same to the further limitation under section 37(3A). Indeed, the expression, 'without prejudice', etc., in our opinion, indicates that the amount to be considered for the purpose of section 37(3A) is not the actual expenditure incurred by the assessee by the expenditure as is quantified by the application of rule 6B which intention is made explicit by the definition of 'adjusted expenditure' in the Explanation to sub-section (3A) of section 37; otherwise, we do not see any situation in which sub-section (3A) of section 37 would become applicable and it would be a dead letter. We find no difficulty in the language employed in section 37(3A) also. We, therefore, uphold the Revenue's claim that the expenditure on account of advertisement, publicity and sales promotion should, in the first instance, be subject to the limitation specified in section 37(3) and the aggregate of such expenditure should further be subject to the limitation in section 37(3A) of the Act. Mr. Satyanarayana pointed out that this double limitation may cause jeopardy. It may be, but, that is obviously the intention of the Legislature. Instances of such dual limitations are not wanting in the Income-tax Act. We may pointed out that in Chapter VI-A, while there is limitation in the matter of deduction under various heads, there is limitation on the total amount of deduction with reference to income of the assessee. If the Legislature in its wisdom thought that more than one limitations should be prescribed for the purpose of allowing the expenditure under tax law, it is not possible for this court to intervene.
8. We accordingly answer the question in the negative, that is, in favour of the Revenue and against the assessee. No costs.