1. The only issue in this appeal by the assessee is whether the amount of Rs. 2 lakhs spent by the assessee on the cost of sculpture installed in the city of Calcutta is deductible as expenditure on advertisement, publicity and propaganda.
2. The assessee is a company engaged in the business of manufacture of medicines. One of the products is "Boroline" which is a well-known medicated cream, very popular in the country. The assessee has been manufacturing the same for many decades. Substantial amounts were spent by the assessee on popularising the medicines manufactured by it including the famous Boroline. During the relevant year, as part of the propaganda and publicity programme in respect of Boroline, the assessee engaged a popular artist by name Smt. Sanu Lahiri of Calcutta for the purpose of sculpting a status for installation of the same at the intersection of the Park Circus and the Eastern Metropolitan Bypass.
There is a traffic island at the inter-section in which the statue was to be installed. The necessary permission for installing the statue and making use of the traffic island was obtained from the Calcutta Metropolitan Development Authorities. Accordingly, the statue was made, fitted and installed at a cost of Rs. 2 lakhs. The statue was a 30 feet fibre glass and concrete structure. The base of the statue bore the name-plate which announced that the statue was "a gift to Calcutta from Boroline". At three places on the fencing around the statue the name "Boroline" was prominently displayed. The statue itself, as we can see from the coloured photographs furnished along with the appeal, depicts a woman bearing lamp-like structure on her head and shoulders. It appears from the photographs that the total height including the structure would be around 30 ft. to 35 ft. The object in choosing the Park Circus-E.M. Bypass inter-section for the installation of the statue apparently was that people coming from and going to Dum Dum Airport would have a pleasing view. In fact, the company thought of the idea as part of the beautification of Calcutta also and at the same time the statue would also attract the attention of people crossing the place, this bringing considerable propaganda or publicity value to it.
The statue was unveiled by His Excellency, the then Governor, Prof.
Saiyad Nurul Hassan on 5-11-1987.
3. In the assessment the cost of the statue was disallowed on the ground that it had no bearing to the business and had no advertisement value. The ITO also observed that the statue was installed at the request of "Forum one" which was an association registered under the Wet Bengal Societies Act. According to him, the expenditure had no relevance to the profit earning process. He, therefore, disallowed the same.
4. On appeal, the disallowance was confirmed on the ground that the expenditure was only for the beautification of Calcutta and publicity and propaganda of Boroline was only a remote possibility. The CIT(A) further held that in any event the expenditure enhanced the goodwill of the company which was an advantage of an enduring nature.
5. In the further appeal it is contended on the basis of the judgment of the Bombay High Court in the case of National Organic Chemical Industries Ltd. v. CIT [1993] 203 ITR 410 that the expenditure was allowable as propaganda and publicity expenses incurred in respect of Boroline. On behalf of the revenue heavy reliance is placed on the orders of the departmental authorities.
6. On a careful consideration of the rival contentions, we are of the view that the expenditure is to be allowed as a deduction. The facts have been stated in the earlier paragraph and they are not in dispute.
From the photographs we find that the name of the product Boroline is prominently displayed in the fencing as well as in the base of the statue itself. It is certain to catch the attention of the passers-by.
The traffic island is situated at an important junction and the publicity or propaganda value cannot be understand. The expenditure, in our opinion, certainly has nexus with the profit earning process. It is no doubt true that the statue was part of the beautification programme of Calcutta but the immediate benefit which the assessee derived by installing the statue is the huge publicity it received in respect of the product Boroline. As held by the Calcutta High Court in the case of British Electrical & Pumps (P.) Ltd. v. CIT [1977] 106 ITR 620, advertisements are well-recognised media through which businessman establish contact with customers. They are issued to promote commerce.
Everything that serves to promote commerce comes within the expression "commercial expediency". The High Court held further that in the absence of any oblique motive in advertising the products, it must be held that the expenditure being incurred to promote the business, must be allowed under section 37(1) irrespective of the result because advertisements facilitate the carrying on of the business. The mere fact that the expenditure also enhanced the beauty of the city is no ground to hold that it did not have any publicity or propaganda value.
The decision of the Rajasthan High Court in the case of CIT v. Kamal & Co. [1993] 203 ITR 1038 is also in favour of the assessee. There an expenditure in respect of a construction of a fountain in Urban Improvement Trust Circle, Jaipur was claimed as advertisement expenses.
The High Court held that the expenditure was incurred for construction of a fountain which resulted in the beautification of a traffic island and at the same time the name of the firm and the line of business carried on by it also got advertised. The High Court, therefore, held that the expenditure was allowable as business expenditure. The facts of the present case bear close similarity to the facts of the reported decision. Further, in our opinion, the CIT(A) was not justified in treating the expenditure as one incurred to enhance the goodwill of the assessee-company. Enhancement of the assessee's goodwill was an indirect or remote result of the expenditure but the immediate object in incurring the expenditure was to advertise the assessee's product.
Even if the expenditure is viewed as part of the beautification of the city of Calcutta, the advertisement value which it brings cannot be under-stated. Therefore, whichever angle it is viewed from, it is clear that the expenditure is allowable as business expenditure under section 37(1), having been incurred wholly and exclusively for the purpose of the assessee's business. The phrase "for the purpose of the business" has been explained by the Supreme Court in CIT v. Malayalam Plantations [1964] 53 ITR 140 as having wide scope, taking in not only the day-to-day running of the business but also rationalisation of the administration and modernisation; it comprehends many other acts incidental to the carrying on of the business. The expenditure in the present case satisfies this test also as it cannot be disputed that advertisement is done only for the purpose of attracting more business.
7. For the above reasons we hold that the expenditure is allowable as deduction under section 37(1) and allow the appeal.