TaxTMI 
TaxTMI 
2013 (5) TMI 415
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....he circumstances of the case, the Appellate Tribunal was legally correct in holding that incurring of expenditure through M/s. Dey's Medical Stores Manufacturing Pvt. Ltd. Calcutta, amounted to the maintenance of any office for the purpose of advertisement, publicity and sales promotion within the meaning of section 37(3B)(iv) of the I.T. Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that expenditure of Rs.23,60,574/- was incurred on the maintenance of any office for the purposes of advertisement, publicity, sales promotion within the meaning of section 37(3B)(iv) of the I.T. Act, 1961? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that no part of the expenditure of Rs.23,60,574/- could be disallowed u/s. 37(2A) as the amount of this expenditure qualified for exemption in terms of clause (iv) of section 37(3B) of the I.T. Act. 1961? 3. We have heard Sri Shambhu Chopra, learned counsel for the applicant and Sri V.K. Upadhyay, senior counsel alongwith Sri Ritvik Upadhyay for the assessee. 4. The assessee, M/s. Dey's Medical St....
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....ars that this amount was paid to the Calcutta Company. The Inspecting Assistant Commissioner was of the opinion that 15% of the above expenditure required to be disallowed in terms of section 37(3A) (iii) of the Income Tax Act, 1961 as it stood at the relevant time. This section states that where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds a certain sum, a percentage of such expenditure shall not be allowed as a deduction. There was no dispute before the Tribunal about the percentage to be disallowed. The claim of the assessee, however, was that its case fell within the exception laid down in section 37(3B) (iv). This section states that nothing contained in sub-section (3A) of section 37 shall apply in relation to any expenditure incurred by an assessee on the maintenance of any office for the purposes of advertisement, publicity or sales promotion. It was submitted before the Inspecting Assistant Commissioner of Income Tax that although the assessee itself did not maintain any office for the above purpose, but that such an office was maintained by Calcutta Company, whose expenses were reimbursed by the assesse....
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....ness. It cannot take within its ambit the expenditure incurred in maintaining the office through another person or agency. 12. On the other hand, Sri V.K. Upadhyay, learned senior counsel appearing for the assessee contended that there is no such restriction for maintenance of the office by the assessee itself under section 37(3B) of the Act. According to him, the phrase "any office" is wide enough to include office maintained by the assessee company through other agency or person or company. He further contended that merely because the assessee company has agreed to reimburse the licensor company to the extent of 8% of the sale value of the goods, it does not change the nature of the payment made and it continues to be the business expenditure coming within the purview of section 37 of the Act. 13. Sub section (3A) and (3B) to section 37 were inserted by Finance Act, 1978 w.e.f. 1-4-1979 and were omitted by the Finance Act No.2 of 1980, w.e.f. 1-4-1981. This sub-section remained on the statute book only for two years for which the instant cases relate viz. assessment year 1979-80 and 1980-81. Learned counsel for the parties could not place before this court any authoritative pro....
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....ritish Sugar Manufacturers vs. Harris (Inspector of Taxes) (1939) 7 ITR 101 Cal, the assessee company agreed with two other companies to pay them a specified percentage of its net profit to be computed upon a conventional basis, in consideration of their extending technical support and financial knowledge to the the assessee company. In that case, it was held that it is not a joint venture or sharing of profit simplicitor but the payment represented remuneration for service rendered is a revenue expenditure and thus, an allowable expenditure. 20. In Travancore Sugars And Chemicals Ltd. v. Commissioner of Income Tax, reported in AIR 1967 SC 477, the Apex Court laid down the test to determine the nature of transaction by holding that "The Court has to look not only into the documents but also at the surrounding circumstances so as to arrive at a decision as to what was the real nature of the transaction from the commercial point of view. No single test of universal application can be discovered for a solution of the question. The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little consequ....
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....where dis-allowance is not to be made. The legislative intent is clear and specific. The law permit total allowance on business expenditure incurred by way of advertisement, publicity and sale promotion, if it is within reasonable limit and are necessary for successful running of the business as compared to extravagance and waste full expenditure made in this regard. 24. In the instant case, the assessee company instead of maintaining the office for the purposes of advertisement, publicity and sale promotion itself had agreed to such activity being done on its behalf by the Calcutta Company. The question is whether such expenditure is necessary and directly connected and attributable to the ordinary course of its business and is thus indispensable or will amount to expenditure which is ostentatious in nature and amounts to extravagance. 25. With the advancement of trade and commerce, new and novel method are being devised to reduce wasteful expenditure and thus improve the efficiency of an organization and its profit. One of such mode which has now come to be known as ''out-sourcing' involves passing of some function of the organization to some outside agency. This becomes import....