TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 817
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.... dences, evidencing sending of free samples and also ignoring the fact that distribution of samples also included shahtoosh shawls which is a prohibited item as per the Indian Wild Life Act and is thus hit by the Explanation to section 37(1) of the Act ?" 2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The assessee-company is an export trading house and is 100 per cent subsidiary of a foreign company "Bazaar Decor SARAL". It claimed expenditure of Rs. 15,45,170 on account of sample distribution. In the absence of evidence of sample distribution on account of foreign shipment or air cargo charges or any other expenditure evidencing sending of free samples to the potential customers, the said amount of Rs. 15,45,170 was disallowed by the Assessing Officer, vide order dated November 16, 2006, annexure A-1. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income-tax (Appeals) (CIT(A)). Vide order dated April 18, 2007, annexure A-2, the Commissioner of Income-tax (Appeals) allowed the appeal. Not satisfied with the order, the Revenue filed an appeal before the Tribunal. Vide order dated....
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....tribution of free samples particularly when it included shahtoosh shawls which was a prohibited item under the 1972 Act and its admissibility was hit by the Explanation to section 37(1) of the Act incorporated retrospectively from April 1, 1962. The argument at the first blush appears to be attractive but when the orders of the Assessing Officer, the Commissioner of Income-tax (Appeals) and the Tribunal are minutely scanned, one is at a loss to find that in the absence of any reference to the Explanation to section 37(1) of the Act on the factual matrix involved in the case, how any such argument arises in this appeal. The substantial question in that regard thus would not arise for our consideration. However, the primary question that arises for consideration would be whether free sample distribution expenses without there being any effective sale during the year under consideration were admissible expenses under section 37(1) of the Act. 8. It would be expedient to refer to section 37(1) of the Act and the Explanation which read as under: "37. (1) Any expenditure (not being expenditure of the n....
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....iture. Further, section 37 as such is a general provision which provides for deduction of expenditure while computing the income chargeable under the head 'Profits and gains of business or profession' of the assessee, if the expenditure is of revenue nature and not personal expenses of the assessee and if the said expenditure is laid out or expended wholly and exclusively for the purpose of business or profession. Hence, if the expenses are not covered by the specific provisions of sections 30 to 36 and yet the said expenses are laid out or expended wholly and exclusively for the purposes of the business or profession and they are not in the nature of capital expenditure or personal expenses of the assessee, then deduction is required to be given for the said expenses. It is quite possible that with regard to some expenses there may be overlapping between sections 30 to 36 and section 37. In that set of circumstances, if the expenses are deductible under sections 30 to 36, then section 37 is not to be resorted to. But if the said expenses are not deductible under sections 30 to 36 and the conditions prescribed under section 37 are satisfied, then the said expenses are requi....
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....earning of income. 13. The Commissioner of Income-tax (Appeals) and the Tribunal had recorded a finding that the assessee-company was an export trading house and had distributed carpets and shawls as samples during the year. It was further noticed that these items were exported by the assessee in the subsequent assessment years 2005-06 and 2006-07. The samples distributed were not extraneous to the business of the assessee. Furthermore, the samples were given to the foreign agents in person during their business exploratory visit in India and the same would fall under the expenditure laid out or expended wholly and exclusively for the purpose of such business. 14. The Tribunal while upholding the admissibility of expenditure on account of sample distribution by the assessee to its customers affirmed the findings recorded by the Commissioner of Income-tax (Appeals) as under : "We have considered the rival submissions carefully. Ostensibly, the case of the assessee for allowability of expenditure of free sample distribution is liable to be examined in terms of the provisions of section 37(1) of the Act.....
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....distributed as samples during the year are carpets and shawls. In the report of the Assessing Officer dated May 25, 2008, submitted by the learned Departmental representative, it is apparent that such goods and other items have been exported by the assessee in the subsequent assessment years of 2005-06 and 2006-07. Apparently, a variety of items have been exported. Therefore, it is not a case where the samples distributed were extraneous to the business of the assessee. May be, the sale of the same commodities has not been undertaken but by the very nature, distribution of samples to the potential customers is an expenditure intended to explore future sale of such commodities. Therefore, in this light, we are in agreement with the stand of the assessee that the expenditure is incurred wholly and exclusively for the purpose of business. At this stage, it would be also appropriate to observe that section 37(1) does not require that the expenditure falling therein must necessarily result in earning of an income. This is so because there is no such requirement in section 37(1). Therefore, the plea of the Assessing Officer that no sales of carpets and shawls have been carried out by the....