Commissioner of Income-tax Vs. Dabur P. Ltd. - Court Judgment

Excerpt:
- 1. on an application under section 256(1) of the income-tax act, 1961, the tribunal has referred the following questions for our opinion : '1. whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the commissioner of income-tax was wrong in directing the assessing officer under section 263 of the act to invoke the provision of section 37(3a) of the income-tax act in respect of the expenditure on calendars, panchangs and diaries 2. whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the expenditure on calendars, panchangs and diaries should be regulated only under section 37(3a) of the income-tax act, 1961, and in that view directing the assessing officer to ascertain the cost of each articles in tender (intended ?) for prescription and regulate the expenditure in accordance with rule 6b 3. whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the payment made to hotels remaining balance after disallowance under section 37(3a) cannot be further disallowed under section 37(2a) of the income-tax act as entertainment expenditure ?' 2. the asscssce is engaged in the manufacture and sale of ayurvedic medicinal preparations and markets the products in the name of 'dabur'. the assessment year involved is 1985-86. 3. during the accounting year relevant to this assessment year, the asses-see has incurred expenditure on the following items : '1. calendars. rs. 5,20,4612. panchang rs. 3,82,8623. diaries rs. 2,36,725_______________total rs. 11,40,048'._______________4. in the original assessment, the income-tax officer has not invoked the provision of section 37(3a) of the act. on scrutiny of the record, the commissioner has found the order of the income-tax officer as erroneous and prejudicial to the case of the revenue to the extent the income-tax officer has not invoked the provision of section 37(3a) of the act for disallowance on the aforesaid expenditure. in the fresh assessment following the direction of the commissioner of income-tax he has invoked the provision of section 37(3a) of the act and disallowed accordingly. the order of the commissioner of income-tax under section 263 has been challenged by the assessee before the tribunal. the tribunal has taken the view that there is no justification to invoke the provisions of section 37(3a) for disallowance on the aforesaid expenses. the tribunal has further taken the view that once the provision of section 37(3a) of the act has been invoked for disallowance on the hotel expenses, no further disallowance can be made invoking the provision of section 37(2a) of the act. 5. none appeared for the assessee though the matter was listed six times. 6. heard learned counsel for the revenue. 7. learned counsel for the revenue brought to our notice a decision of the karnataka high court in the case of smith kline and french (india) ltd. v. cit : [1992]193itr582(kar) , wherein the karnataka high court has taken the view that no doubt in the commercial sense the mode of achieving this object cannot be confined to the act of media propaganda and a direct approach to the consumers by publicising the product through newspaper advertisements, posters or some other similar methods, the nature of advertisement or publicity depends upon the nature and quality of the article in question and an inducement to the public to buy a particular commodity, may be formulated in a mode most suitable to the article in question. therefore, the distribution of samples should be treated as an expenditure incurred towards advertisement, publicity or sales promotion. 8. considering the facts of this case, the revenue stands on a better footing in the case in hand, i.e., the expenditure on calendars, panchang which gives the details and publicity of the company and its product is forthe purpose of publicity and advertisement and for sales promotion. therefore, the tribunal has erred in holding that the provisions of section 37(3a) of the act cannot be invoked. the third question relates to the issue whether the disallowance of hotel expenses when the provision of section 37(3a) has been invoked, can there be a disallowance further of the balance amount under section 37(2a) of the act 9. the provision of sub-section (2a) of section 37 provides and starts with a non obstante clause in respect of sub-section (1) and sub-section (2), no allowance shall be made in respect of the expenditure in the nature of entertainment expenditure incurred by the assessee, after 30th day of september, 1967, while sub-section (3a) provides for disallowance of part of the expenses which are incurred by the assessee on advertisement, publicity and sales promotion. once the expenditure in question was treated as expenditure pertaining to sub-section (3a) of section 37, that cannot be again treated as expenditure referred to in sub-section (2a) of section 37. therefore, there is no infirmity in the order of the tribunal in this regard. 10. in the result, we answer questions nos. 1 and 2 in the negative, i.e., in favour of the revenue and against the assessee. question no. 3 is answered in the affirmative, i.e., in favour of the assessee and against the revenue. . 11. the reference so made stands disposed of accordingly.