Sales commission and withdrawn tax concession payments: commission is not sales promotion, and only the tax differential is deductible.

Sales commission paid on actual sales is not treated as sales promotion expenditure for disallowance purposes, so it falls outside the restrictive provision discussed. Amounts paid on withdrawal of a sales tax concession are deductible only to the extent they represent the tax differential between the concessional and full rates; that differential is ordinary tax liability, not a penalty. Any amount levied beyond the withdrawn concession may take on a penal character. The analysis therefore distinguishes genuine commission from promotional and separates normal tax liability from punitive exaction.

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Issues: (i) Whether sales commission paid on actual sales could be treated as sales promotion expenditure for disallowance under section 37(3A) of the Income-tax Act, 1961. (ii) Whether the amount paid under section 5C of the Rajasthan Sales Tax Act was deductible in full as a business expenditure or only to the extent of the tax concession withdrawn.

Issue (i): Whether sales commission paid on actual sales could be treated as sales promotion expenditure for disallowance under section 37(3A) of the Income-tax Act, 1961.

Analysis: The payment was in the nature of commission on sales and was not equivalent to expenditure incurred for sales promotion. The issue had already been answered in the same manner in an earlier decision, and the reasoning was followed here.

Conclusion: The amount paid as sales commission could not be included as sales promotion expenditure for disallowance under section 37(3A). This issue was decided in favour of the assessee.

Issue (ii): Whether the amount paid under section 5C of the Rajasthan Sales Tax Act was deductible in full as a business expenditure or only to the extent of the tax concession withdrawn.

Analysis: The provision granted a concessional tax rate subject to conditions. On failure to satisfy those conditions, the concession stood withdrawn and the dealer became liable to pay the difference between the full rate and the concessional rate. That part represented ordinary tax liability and not a true penalty. Only any excess over that difference, if levied, would assume the character of penalty.

Conclusion: The expenditure was allowable only to the extent it represented the difference between tax at the full rate and tax at the concessional rate. This issue was partly in favour of the assessee.

Final Conclusion: The reference was answered by granting relief on both questions, fully on the first and to a limited extent on the second, with no order as to costs.

Ratio Decidendi: A payment that merely represents withdrawal of a tax concession and the collection of the normal tax differential is not a penalty, and sales commission on actual sales is not sales promotion expenditure for the purpose of section 37(3A).

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