Cit Vs. Ponds India Ltd

Cit vs Ponds India Ltd

Type Court Judgment Court Chennai Decided Jun 28, 2001

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Citation: sooperkanoon.com/829462
Court: Chennai High Court
Decided On: Jun 28, 2001
Case Number: Tax Case No. 164 of 1992 28 June 2001.
Subject: Direct Taxation

Case Summary

AI-generated summary - not the official court judgment text.

Counsels: J. Naresh Kumar, for the Revenue None appeared, for the Assessee Head Note: INCOME TAX Business disallowance under s. 37(3D)--ADVERTISEMENT AND SALES PROMOTION EXPENSES'Setting up' of industrial undertaking--Change of ownership Catch Note: Assessee-company was incorporated for purpose of taking over busi...

Key legal issue: Direct Taxation

Parties & Advocates

Appellant / Petitioner

Cit

Advocate J. Naresh Kumar, <i>for the Revenue </i>None appeared, <i>for the Assessee</i>

Respondent

Ponds India Ltd

Legal References

Reported In: (2002)174CTR(Mad)235; [2002]253ITR686(Mad)

Excerpt

.....claim though initially negatived by assessing officer, was accepted by commissioner (appeals) whose decision was affirmed in appeal--not justified--an industrial undertaking which had been set up long prior, and which had commenced manufacture several years earliers, cannot be regarded as an industrial undertaking set up in year in which ownership changes--every change in ownership of that undertaking does not result in same industrial undertaking being set up over and over again--therefore, assessee-company was not entitled to deduction of expenditure incurred on advertisement and sales promotion. ratio: an industrial undertaking which had been set up long prior, and which had commenced manufacture several years earliers, cannot be regarded as an industrial undertaking set up in year in which ownership changes--every change in ownership of that undertaking does not result in same industrial undertaking being set up over and over again--therefore, assessee-company was not entitled to deduction of expenditure incurred on advertisement and sales promotion. held: it is clear from a bare perusal of section 37(3d) that the benefit provided for therein is to be availed of by the assessee, who sets up an industrial undertaking the benefit being available during the year in which the manufacture begins and for the succeeding two years. in a case where the product manufactured remains the same, as in this case, and expenditure was being incurred on publicity for that product for several years prior to the formation of the assessee-company which had continued the business that had already been set up, it cannot be said that the assessee had 'set up' an industrial undertaking. the words 'set up' in the context in which they are used refer to an industrial undertaking which commenced manufacture in the year in which the claim for deduction is made or had commenced such manufacture within a period of three years preceding the year of claim. an industrial..........by manufacturing and marketing cosmetic products. that same business was continued by the assessee with the aid of plant and machinery that had been owned by the american company and additions made thereto by the indian company. the products manufactured remained the same during the assessment year 1980-81.in respect of the expenditure incurred by the assessee on advertisement, publicity and sales promotion the assessee claimed exemption under section 37(3d) of the income tax act, 1961, on the ground that it had set up an industrial undertaking. that claim though initially negatived by the assessing officer, was accepted by the commissioner, whose decision was affirmed in appeal. the revenue, is now before us questioning the correctness of the view of the tribunal. ,section 37(3d) 4s,.it stood in the relevant year reads thus'in a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in sub-section (3a) shall apply in respect of any expenditure on advertisement, publicity or sakes promotion incurred by the assessee, for the purposes of the business of such undertaking, in the, previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year.'the section refers to an assessee who has 'set up' an industrial undertaking. such undertaking should be one for the manufacture or production of an article in respect of which expenditure is incurred by the assessee on the advertisement, publicity or sales promotion the exemption from section 37(3a) for such an undertaking is for the previous year in which the undertaking '. . . begins to manufacture or produce such articles' and each of the two previous years immediately succeeding that previous year.it is clear from a bare perusal of the section that the benefit provided for therein is to be availed of by the assessee, who sets up an industrial undertaking the.....

Full Judgment

R. Jayasimha Babu J.

The assessee-company was incorporated on 5-5-1977, for the purpose of taking over the business which was being run by an. American company, Chesebrough Ponds Inc. The American company had been carrying on business in India by manufacturing and marketing cosmetic products. That same business was continued by the assessee with the aid of plant and machinery that had been owned by the American company and additions made thereto by the Indian company. The products manufactured remained the same during the assessment year 1980-81.

In respect of the expenditure incurred by the assessee on advertisement, publicity and sales Promotion the assessee claimed exemption under section 37(3D) of the Income Tax Act, 1961, on the ground that it had set up an industrial undertaking. That claim though initially negatived by the assessing officer, was accepted by the Commissioner, whose decision was affirmed in appeal. The revenue, is now before us questioning the correctness of the view of the Tribunal. ,

Section 37(3D) 4s,.it stood in the relevant year reads thus

'In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sakes promotion incurred by the assessee, for the purposes of the business of such undertaking, in the, previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year.'

The section refers to an assessee who has 'set up' an industrial undertaking. Such undertaking should be one for the manufacture or production of an article in respect of which expenditure is incurred by the assessee on the advertisement, publicity or sales promotion The exemption from section 37(3A) for such an undertaking is for the previous year in which the undertaking '. . . begins to manufacture or produce such articles' and each of the two previous years immediately succeeding that previous year.

It is clear from a bare perusal of the section that the benefit provided for therein is to be availed of by the assessee, who sets up an industrial undertaking the benefit being available during the year in which the manufacture begins and for the succeeding two years.

In a case where the product manufactured remains the same, as in this case, and expenditure was being incurred on publicity for that product for several years prior to the formation of the assessee-company which had continued the business that had already been set up, it cannot be said that the assessee had 'set up' an industrial undertaking. The words 'set up' in the context in which they are used refer to an industrial undertaking which commenced manufacture in the year in which the claim for deduction is made or had commenced such manufacture within a period of three years preceding the year of claim. An industrial undertaking which had been set up long prior, and which had commenced manufacture several years earlier, dearly cannot be regarded as an industrial undertaking set up in the year in which the ownership changes. It is not the year in which the legal entity that owns the undertaking is formed that matters; what is material is the year in which the industrial undertaking is set up. Every change in the ownership of that undertaking does not result in the same industrial undertaking being set up over and over again.

Counsel for the revenue referred us to the case of CIT v. Hyderabad Bottling Co. P. Ltd. : [2000]243ITR476(AP) . The Andhra Pradesh High Court, therein took the view that the benefit provided under that section can be extended to a new product and the expenses incurred on advertisement by the industrial undertaking in respect of its new product would come within the purview of section 37(3D). That decision is not of any assistance for the purpose of deciding the question which requires our consideration here.

The Tribunal was dearly in error in taking the view that it did and the question' referred to us, therefore, is answered against the assessee and in favour of the revenue.

Same Court & Year Chennai · 2001 Same Parties Cit vs Ponds India Ltd Same Subject Direct Taxation

Direct Taxation