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Issues: (i) Whether expenditure incurred on free samples was liable to disallowance under section 37(3A) of the Income-tax Act, 1961. (ii) Whether expenditure incurred on technical literature was liable to disallowance under section 37(3A) of the Income-tax Act, 1961.
Issue (i): Whether expenditure incurred on free samples was liable to disallowance under section 37(3A) of the Income-tax Act, 1961.
Analysis: The issue was governed by the Supreme Court decision holding that expenditure on samples falls within the ambit of section 37(3A). The Court applied that authority to the undisputed facts of the case.
Conclusion: The question was answered in the affirmative. The disallowance of expenditure on samples was upheld, in favour of the Revenue and against the assessee.
Issue (ii): Whether expenditure incurred on technical literature was liable to disallowance under section 37(3A) of the Income-tax Act, 1961.
Analysis: The Court followed its earlier view that expenditure on medical journals or technical literature does not attract disallowance under section 37(3A). On that basis, the claim in respect of technical literature was accepted.
Conclusion: The question was answered in the negative. The expenditure on technical literature was held not to be hit by section 37(3A), in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered partly for the Revenue and partly for the assessee, with disallowance sustained for samples but not for technical literature.
Ratio Decidendi: Expenditure on medical samples falls within section 37(3A) of the Income-tax Act, 1961, whereas expenditure on technical literature does not.
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