TaxTMI 
TaxTMI 
2014 (10) TMI 365
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....provisions because, the expenditure incurred by the Assessee by way of advertisement and publicity expenses, substantially benefited the two foreign principals and the Assessee did not receive any compensation on that account from the foreign principals and whether upon the aforesaid consideration, the Hon'ble ITAT was justified in not upholding the order of the Assessing Officer ? (c) Whether in the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in rejecting the alternative claim of the Revenue that the huge advertisement and publicity expenses should be treated as deferred revenue expenditure since, the benefit of the expenditure spread over future years ? 2. It will be convenient to narrate few facts which led upto present appeal : The respondent - assessee is a company incorporated in India and engaged in the business of distribution of T.V. channels popularly known as National Geographic and History Channel. The assessee - NGC Network (India) P. Ltd. also acts as airtime advertising Sales Representative for its principals NGC Network Asia LLC ("NGC Asia") which operates the National Geographic Channel and Fox International Channels (US....
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....ising and publicity increases popularity of the programme which would result in higher demand for advertising spots on the channel resulting in high advertising revenue and consequent increase in commission of the assessee. Thus, the assessee contended that there is direct nexus between advertising and promotions of the Channels and increase in advertising revenue and entailing increased commission. 6. The Assessing Officer, it appears, noted that the Respondent had incurred expenses towards advertising and publicity which benefited not only the assessee but also the foreign principals i.e. aforesaid "NGC Asia" and "FOX". That the assesee did not disclose such benefit to the members as part of form 3CEB. Accordingly, it was held that the entire expenditure under head "Advertising and Promotion" amounting to Rs. 6,21,31,262/- was not allowable as deduction under section 37(1) of the Act. He restricted allowable deduction under section 37(1) to only 33.33% of the total amount of Rs. 6,21,31,262/- which is to a sum of Rs. 2,07,10,419/-. 7. Being aggrieved by the order dated 11th December, 2008 passed by the Assessing Officer the respondent-assessee preferred an appeal before the Com....
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....elying upon decision of Supreme Court in Sassoon J. David (supra). Mr.Chottaray further submitted that the assessee had not expended any amount under the head advertisement and promotion of NGC Asia but are still deriving benefit therefrom. In the circumstances according to Mr.Chhotaray it is not permissible to allow the deduction. Firstly, because the benefit accruing to the foreign principals was not disclosed in Form 3CEB and secondly, because despite such benefit foreign principal had not contributed towards the costs of advertising, publicity and promotion. 9. Mr.Chhotaray relied upon the order of the Transfer Pricing Officer pertaining to assessment year 2008-09 to show that the expenses have been debited under head Advertising and Publicity in the Profit and Loss Account of the Assessee without disclosing the benefits to foreign principals which according to him ought to have been disclosed. This was fourth year of the assessment under section 92CA(3) of the Act. The first one was assessment year 2004-05 followed by 2005-06 with which we are presently concerned. At page 2 of the order of the Transfer Pricing Officer it records that the assessee has recorded international tr....
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....rtain conditions must be satisfied which included positive and negative tests inasmuch as expenditure must be in the nature of revenue and not capital expenditure. It must be laid out or expended wholly and for the purpose of business and it must not be of the nature described in section 30 to 36 and section 80VV. One of the negative tests according to the judgment which is relied upon by Mr.Chhotaray is that the expenses must not be unreasonable and out of proportion. 13. In this respect he submits that in the case at hand the sum expended on the publicity and promotions exceeded amount of revenue earned, therefore, the same cannot be allowed as a deduction. This submission of Mr.Chhotaray cannot be accepted for the simple reason that the amount of expenses incurred may be at times larger than actual revenue. 14. Mr.Chhotaray also relied upon decision of Supreme Court in case of D. B Madon vs. Commissioner of Income Tax Vol.192 ITR 344 to support his submission that it is always open to the High Court to follow its earlier decision and answer the question of law one way or other according as whether the view taken in the earlier commends itself to the Court or whether in its opi....
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....f somebody else other than assessee is also benefited from the expenditure, the deduction under section 37 should not be affected. He relied upon the decision of the Supreme Court in Sassoon J. David (supra) and submitted that merely because foreign principal was benefited by advertising, promotion and publicity it will not prevent the respondent-assessee from claiming benefit of deduction under section 37(1). 17. Mr.Kaka also relied upon the decision in Maruti Suzuki India Ltd. vs. Additional Commissioner of Income Tax in Civil Appeal No.8457 of 2010 reported in (2011) 198 Taxman 102 SC wherein it was held that the compensation of arms length price that the Transfer Pricing Officer had decided the issue pursuant to directions of the High Court in that case and that the findings of the Transfer Pricing Officer were conclusive. The assessee had not challenged the order of the Transfer Pricing Officer. The High Court further directed the Transfer Pricing Officer to decide the matter in accordance with law and directed the Transfer Pricing Officer who has already issued fresh show cause notice to proceed with matter in accordance with law uninfluenced by the observations/directions g....
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....fer Pricing Officer `could' have taken a different view. Admittedly therefore the Transfer Pricing Officer had followed a possible view which cannot now be faulted. 21. The contention that the expenditure should have been wholly and exclusive for the purpose of business of the assessee under section 37(1) read with provisions of section 40A(2) as being excessive and unreasonable does not appeal to us. There can be no doubt in the instant case, that in view of decision of the Supreme Court in Sassoon David (supra) it cannot be said that the expenditure was not wholly or exclusively for benefit of the assessee. The mere fact that foreign principals also benefited does not entail right to deny deduction under section 37(1). Furthermore, it is seen that all the amounts earned by the assessee were brought to tax, especially in view of the fact that the payment of expenses were made to Indian residents and there payments were not required to be included in form 3CEB since Section 92 which governs the effect of form 3CEB covers only international transactions. Furthermore, it is seen that the respondents income from subscription fee is variable and through commission received on the ....