TaxTMI 
TaxTMI 
2015 (2) TMI 363
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....d the addition of Rs. 2,61,54,952 added by the Assessing Officer, inter alia, on the ground that there was no obligation on the part of the assessee to incur huge advertisement expenses ? (b) Whether the Tribunal, while deleting the disallowance made by the Assessing Officer, was correct in law and on facts in ignoring the fact that the assessee has acted as agent of the foreign company for booking advertisement ?" I. T. A. No. 1101 of 2011 (assessment year 2003-04) "(1) Whether the Income-tax Appellate Tribunal was correct in law and on fact in affirming the order of the Commissioner of Income-tax (Appeals), whereby the Commissioner of Income-tax (Appeals) has deleted the addition of Rs. 67.15 lakhs made by the Assessing Officer while disallowing the proportional advertisement expenses ? (2) Whether the order of the Income-tax Appellate Tribunal, which is a final fact finding authority, is not perverse as it has not gone through the facts properly and merely relied on its own ord....
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....n fee of more than Rs. 23.46 crores, the major source of income/receipt. The Assessing Officer held that the subscription revenue collected from the cable operators did not require advertisement expenses. Accordingly, 100 per cent. or the entire advertisement expenditure of Rs. 2,61,54,952 was disallowed as non-business expenditure or as expenditure not relatable to the respondent-assessee's business but business of the associated enter prises resident abroad. I. T. A. No. 1101 of 2011 (assessment year 2003-04) 5.1. The respondent-assessee filed a return declaring "nil" income. In the profit and loss account, the assessee had disclosed programme sourcing fee of Rs. 4,22,48,648, subscription fees of Rs. 37,49,90,580, agency com mission of Rs. 4,59,53,913, marketing income of Rs. 14,62,341 and other income of Rs. 13,71,488. The Assessing Officer noticed that that the adver tisement sale commission of Rs. 2.78 crores was earned, whereas the asses see had claimed advertisement expenses of Rs. 2,37,57,000. Rs. 2.78 crores was only 15 per cent. of the total receipts and the balance 85 per cent. had been transferred or paid to the related or associated enterprise abroad. He rejected....
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....rt), vide its impugned orders. Factual findings as recorded by the Tribunal and the legal effect of said findings on the merits 7. The comprehensive and perspicuous finding of the appellate authorities is that the advertisement expenditure was incurred in terms of the licence agreement granting the distribution rights to the assessee by the associated enterprise, Discovery Asia Inc. Under this agreement, the respondent- assessee had procured right to distribute the signals of Discovery Channel and Animal Planet Channel and right to collect revenue arising or generated from distribution. Accordingly, the assessee had received subscription revenue of Rs. 23.46 crores, Rs. 37.49 crores and Rs. 39.89 crores from the cable operators in the three assessment years. The agreement mandated and required that the assessee to develop and expand the viewership of the Discovery Channel and Animal Planet Channel, which had started with a status of a "free to air channel" and made transition to a "pay channel". Increased viewership obviously meant increased subscription revenue and earnings. It was manifest and self-evident that the assessee would have undertaken publicity, advertisement and inc....
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....ital expenditure ; (b) it is not personal expenditure ; and (c) it should be expended wholly and exclusively for the purpose of business. 10.1. The first two conditions are negative in nature, while the third condition or requirement is positive. It is not the case of the Revenue that the expenditure on advertisement was capital or personal in nature. The expression "expenditure" denotes idea of spending or paying out. It is not the case of the Revenue that the expenditure was not incurred or was not genuine, but fictitious. 10.2. The question raised is whether the expenditure was wholly and exclusively for the purpose of assessee's business. The words "wholly and exclusively" though not synonymous and are sufficiently wide but are not restricted to expenditure solely incurred for the purpose of earning of pro fits. For an amount spent as an admissible expenditure under section 37(1), the same should be for the purpose of business and not for the purpose of earning income (see Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 (SC) and CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC). In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC)), it h....
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....ed for the assessee's own business, the mere fact that the expenditure would inure or benefits a third party or the third party incidentally obtains some advantage, would not affect or distract from the finding that the expenditure was wholly and exclusively was for the assessee's business. For example, a retail trader may advertise different products which may incidentally benefit the manufacturers but this does not mean that advertisement expenditure fails to meet the requirement of "wholly and exclusively". Law in this regard is well settled. Relevant would be to refer to the authoritative pronouncement of the Supreme Court in CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601 (SC), observing (page 610) : "In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party (Usher's Wiltshire Brewery Ltd. v. Bruce....
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....td. v. CIT [1979] 118 ITR 261 (SC) ; [1979] 3 SCC 524, the Supreme Court has held (page 275 of 118 ITR) : "The next contention urged on behalf of the Department was that since Davids and Tatas were indirectly benefited by the retrenchment of the services of the employees of the company and payment of compensation to them and since there was no necessity to retrench the services of all the employees, the expenditure in question could not be treated as an expenditure laid out wholly and exclusively for business purposes of the company. It has to be observed here that the expression 'wholly and exclusively' used in section 10(2)(xv) of the Act does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is ....
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....xpenditure incurred and the price paid for functions performed 13. The Assessing Officer has failed to notice the difference between the expenditure incurred by the assessee towards advertisement and publicity and the price paid to the assessee by the associated foreign enterprise for services rendered, etc. The first relates to the expenditure or an outgoing paid for the business. The second relates to income or price paid for the transactions between the respondent-assessee and the associated enterprise and which would constitute an international transaction. The second aspect is linked and connected with the income earned, i.e., price paid for the service rendered, goods sold, etc. An international transaction with an associated enterprise can be subjected to transfer pricing adjustment under Chapter X of the Act read with the applicable rules by the Transfer Pricing Officer by applying the functions performed, risk assumed and the asset deployed, criteria/principle. The Transfer Pricing Officer is required to select appropriate method specified in section 92C of the Act and determine/compute the arm's length price. In the present case, the Transfer Pricing Officer did not ....