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of <h1>Supreme Court rules on surtax deduction and pharmaceutical company's advertisement expenditure</h1> <h3>Eskayef Ltd. Etc. (now known as Smith Kline Beecham Pharmaceuticals (India) Ltd.) Versus Commissioner of Income-Tax</h3> Eskayef Ltd. Etc. (now known as Smith Kline Beecham Pharmaceuticals (India) Ltd.) Versus Commissioner of Income-Tax - [2000] 245 ITR 116 (SC), 2000 AIR ... Issues:1. Assessment year 1980-81 - Liability to pay surtax as admissible deduction in computing total income.2. Expenditure on physician's samples - Whether it falls under advertisement expenditure.3. Interpretation of provisions under section 37(3A) of the Income-tax Act, 1961.Issue 1: Assessment year 1980-81 - Liability to pay surtax as admissible deduction:The Supreme Court addressed the appeal related to the assessment year 1980-81, focusing on the liability to pay surtax as an admissible deduction in computing the total income. The certification granted by the High Court was limited to this question. The court referred to a previous decision in the case of Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, which concluded that the liability to pay surtax is not an admissible deduction. Consequently, the court answered the question in the negative, favoring the Revenue, and dismissed the civil appeal with no order as to costs.Issue 2: Expenditure on physician's samples - Advertisement expenditure:The court examined whether the expenditure incurred on distributing physician's samples by a pharmaceutical company constituted advertisement expenditure. The appellant argued that such distribution was not for advertisement but to obtain feedback on the efficacy of prescription drugs. However, the court disagreed, stating that distributing samples to doctors for prescription drugs amounted to publicity and sales promotion. The court emphasized that the purpose was to persuade doctors to prescribe the drugs, which falls within the scope of advertisement and sales promotion. The court also rejected the argument that the distribution was solely for feedback, noting the lack of evidence supporting this claim.Issue 3: Interpretation of provisions under section 37(3A) of the Income-tax Act, 1961:The court delved into the interpretation of section 37(3A) of the Income-tax Act, 1961, concerning the allowability of expenditure on physician's samples. It analyzed the provisions and previous judgments, including the Andhra Pradesh High Court's decision in CIT v. J and J Dechane Laboratories (P.) Ltd. [1996] 222 ITR 11. The court disagreed with the distinction made by the Andhra Pradesh High Court between essential business expenditure and other expenses, asserting that all expenditure on distributing physician's samples for publicity falls under section 37(3A) limitations. The court highlighted the absence of evidence supporting the essential nature of the expenditure and concluded that the expenditure on physician's samples was subject to the restrictions under section 37(3A), favoring the Revenue's stance.In conclusion, the Supreme Court upheld the decisions of the lower courts, answering the questions related to surtax liability and physician's samples in favor of the Revenue. The appeals were dismissed with costs, emphasizing the interpretation of advertisement expenditure and the provisions of section 37(3A) of the Income-tax Act, 1961.
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