2002 (9) TMI 31 - HC - Income Tax

Court rules commissions and discounts not sales promotion expenses under Income-tax Act

The High Court of Madras held that commissions and discounts on sales are not to be treated as sales promotion expenses under section 37(3A) of the ... 'Whether, Tribunal was justified in its conclusion that commission and discounts on sales amounting to Rs. 9,15,115 should not be taken into account while considering the disallowance under section 37(3A) of the Income-tax Act, 1961?' - The term 'sales promotion' is not to be confused with the sales actually effected. While 'sales promotion' are measures taken by the assessee to promote generally the sales of the products manufactured by it, or dealt with by it, individual sales made in the normal course of business on commercial terms either directly to the customer, or through its wholesale and other dealers to whom, under the terms of trade discounts and commissions are allowed, cannot be regarded as sales promotion. - The question referred to us is required to be, and is answered against the Revenue, and in favour of the assessee. The High Court of Madras ruled that commissions and discounts on sales should not be considered as sales promotion expenses under section 37(3A) of the Income-tax Act, 1961. The Tribunal's decision in favor of the assessee was upheld for the assessment year 1985-86. The court clarified that offering discounts on sales does not constitute sales promotion expenses.