Commission on sales is not sales promotion expenditure, so the disallowance under section 37(3A) does not apply.

Commission paid to sales agents was held not to constitute sales promotion expenditure, because sales promotion was understood to cover advertisement, publicity, incentive measures and similar steps used to popularise a product and stimulate sales. On that construction, commission on sales fell outside the scope of section 37(3A), so the disallowance did not apply and the reference was answered in favour of the assessee.

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Issues: Whether commission paid on sales constitutes sales promotion expenditure so as to attract the disallowance under section 37(3A) of the Income-tax Act, 1961.

Analysis: The court applied the settled meaning of "sales promotion" as embracing advertisement, publicity, incentive measures and other steps taken to popularise the product and promote sales. On that understanding, commission paid to sales agents was treated as falling outside the expression "sales promotion expenditure".

Conclusion: Commission paid on sales is not sales promotion expenditure and section 37(3A) does not apply. The reference was answered in favour of the assessee and against the Revenue.

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