1986 (6) TMI 68 - AT - Income Tax

Tribunal Upholds Decision on Advertisement Expenses Exemption

The tribunal ruled in favor of the department, holding that the assessee did not qualify for the exemption under section 37(3D) of the Income-tax Act. It ... Advertisement Expenditure Issues:1. Interpretation of section 37(3D) regarding the admissibility of advertisement expenses for an industrial undertaking.2. Determination of whether the assessee set up a separate industrial undertaking for the production of a new soft drink under section 37(3D).Detailed Analysis:1. The judgment revolves around the interpretation of section 37(3D) of the Income-tax Act, 1961, which deals with the admissibility of advertisement expenses for an industrial undertaking. The provision exempts certain expenses if an assessee sets up an industrial undertaking for the manufacture of articles. The case involved the production of a new soft drink brand, and the contention was whether the assessee qualified for the exemption under section 37(3D) for advertisement and publicity expenses related to the new product.2. The department contended that the assessee did not establish a separate industrial undertaking for the new soft drink production, merely expanding its existing capacity. The Commissioner (Appeals) disagreed, noting the installation of new machinery and plant specific to the new product. The department argued that for the exemption under section 37(3D), a distinct industrial undertaking must be set up, citing legal precedents. In response, the assessee argued that setting up a new industrial undertaking was not a prerequisite for the exemption, relying on tribunal decisions and the interpretation of 'industrial undertaking' from previous court judgments.3. The judgment highlighted the absence of a statutory definition for 'industrial undertaking' and emphasized the need for the establishment of a new set up for production of a new article to qualify for the exemption under section 37(3D). The legislative intent behind the introduction of sub-sections (3A) to (3D) of section 37 was discussed, aiming to curb excessive advertisement expenses. The tribunal concluded that the assessee did not set up a separate industrial undertaking for the new soft drink, as required by section 37(3D), and upheld the addition of advertisement expenses made by the IAC, overturning the Commissioner (Appeals)'s decision.4. Ultimately, the tribunal allowed the department's appeals, ruling that the assessee was not entitled to the exemption under section 37(3D due to the lack of evidence supporting the establishment of a distinct and independent industrial undertaking for the production of the new soft drink. The judgment reaffirmed the necessity of meeting the statutory requirements for claiming exemptions under the Income-tax Act, emphasizing the specific conditions outlined in section 37(3D) for the admissibility of advertisement expenses related to industrial undertakings.