Court ruling: Surtax not deductible. Expenditure classified; ads, sales promo, salary. Printing expenses disallowed.

The court held that surtax payable by the assessee was not deductible in computing income. Expenditure on sales literature and promotional aids was classified as advertisement expenses. Expenditure on free samples to medical practitioners was considered as sales promotion expenses. Reimbursement of medical expenses to employees was classified as salary. Expenses on printing scientific literature were disallowed except where deemed scientific information. The court ruled in favor of the Revenue in most instances, except for one reference where the decision favored the assessee.

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Issues Involved:
1. Deductibility of surtax in computing income.
2. Classification of sales literature and promotional aids expenditure.
3. Classification of free sample expenditure.
4. Classification of reimbursement of medical expenses as salary.
5. Classification of expenses on printing and publication of pamphlets and booklets.

Issue-wise Detailed Analysis:

1. Deductibility of Surtax in Computing Income:
In I.T.R. No. 170 of 1987 and I.T.R. No. 31 of 1989, the issue was whether surtax payable by the assessee was deductible in computing the assessee's income under "Profits and gains of business or profession." The court held, aligning with the decision of the apex court in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, that surtax payable was not deductible, thus answering the question in favor of the Revenue.

2. Classification of Sales Literature and Promotional Aids Expenditure:
In I.T.R. No. 170 of 1987, the court examined whether the expenditure of Rs. 8,61,010 on "sales literature and miscellaneous promotional aids" was on advertisement, publicity, and sales promotion under section 37(3A) of the Income-tax Act, 1961. The Tribunal found that the literature aimed at promoting sales by highlighting the superiority of the assessee's products, thus falling within the ambit of section 37(3A). The court upheld this view, stating that the expenditure was indeed for advertisement, publicity, and sales promotion.

3. Classification of Free Sample Expenditure:
In I.T.R. No. 170 of 1987 and I.T.R. No. 31 of 1989, the issue was whether the estimated expenditure of Rs. 2,00,000 on samples distributed free of cost to medical practitioners was for advertisement, publicity, and sales promotion under section 37(3A). The court referred to the apex court's decision in Eskayef v. CIT [2000] 245 ITR 116, which held that free samples to doctors constitute publicity and sales promotion. The court concluded that the expenditure on free samples was includible for disallowance under section 37(3A).

4. Classification of Reimbursement of Medical Expenses as Salary:
In I.T.R. No. 31 of 1989, the issue was whether the reimbursement of medical expenses by the assessee to its employees fell within the provisions of section 40A(5) as 'salary.' The court, following the decision of the apex court in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644, answered in favor of the Revenue, holding that such reimbursements were indeed classified as salary.

5. Classification of Expenses on Printing and Publication of Pamphlets and Booklets:
In I.T.R. No. 460 of 1987 and I.T.R. No. 323 of 1988, the issue was whether expenses on printing and publication of pamphlets and booklets containing scientific information were to be included in advertisement, publicity, and sales promotion expenses. The court held that the medical literature printed by the assessee did not qualify as "journals" under section 37(3B)(vii) and thus were includible for disallowance under section 37(3A). However, in I.T.R. No. 323 of 1988, the Tribunal's finding that these expenses were scientific information and not for advertisement, publicity, or sales promotion was upheld, answering in favor of the assessee.

Conclusion:
The court answered the questions in each reference as follows:
- I.T.R. No. 170 of 1987:
- Question 1: In favor of Revenue.
- Question 2(a): In favor of Revenue.
- Question 2(b): In favor of Revenue.
- Question 3: In favor of Revenue.

- I.T.R. No. 31 of 1989:
- Question 1: In favor of Revenue.
- Question 2: In favor of Revenue.
- Question 3: In favor of Revenue.

- I.T.R. No. 460 of 1987:
- Question: In favor of Revenue.

- I.T.R. No. 323 of 1988:
- Question: In favor of Assessee.

All references were disposed of accordingly, with no order as to costs.

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