Industrial undertaking exception excluded advertisement expenditure restriction where film manufacture began during the relevant year.

The advertisement expenditure ceiling under section 37(3A) did not apply where the assessee had set up an industrial undertaking for the manufacture of films and commenced manufacture in the relevant previous year. The expression "industrial undertaking" was read as a business activity or enterprise engaged in manufacture or production, not necessarily a separate factory or identifiable asset. On that basis, the statutory exception in section 37(3D) applied from the year manufacture began and for the two immediately preceding previous years, so the restriction on advertisement expenditure could not be invoked.

---

---

Issues: Whether the restriction on advertisement expenditure under section 37(3A) of the Income-tax Act, 1961 applied to the assessee, or whether the exception in section 37(3D) was attracted because the assessee had set up an industrial undertaking for the manufacture of films and had begun manufacture during the relevant previous year.

Analysis: The assessee had commenced manufacture of films in the relevant previous year. The expression industrial undertaking was treated as referring to a business activity or enterprise engaged in manufacture or production, and not necessarily to a separate identifiable factory or asset. On that footing, the statutory exception in section 37(3D) was held to apply in the year in which the undertaking began manufacture of the article and for the two immediately preceding previous years.

Conclusion: The ceiling under section 37(3A) was not applicable, and the advertisement expenditure could not be restricted under that provision.

Final Conclusion: The Revenue's challenge to the allowance of the full advertisement expenditure failed, and the disallowance made under section 37(3A) was not sustained.

Ratio Decidendi: Where an assessee has set up an industrial undertaking and begins manufacture or production during the relevant previous year, the exception in section 37(3D) excludes the application of the advertisement expenditure restriction in section 37(3A).

---