TaxTMI 
TaxTMI 
2003 (1) TMI 63
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....tion incurred by the assessee in the assessment years 1979-80 and 1980-81 ?" Question No. 2. (At the instance of the Revenue) "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for computing the disallowance under section 40(c) of the Income-tax Act, 1961, in respect of expenditure which resulted in remuneration, benefit or amenities to the managing director, Shri J. Om Prakash, amount of Rs. 3,50,000 paid in the accounting year relating to the assessment year 1979-80 and Rs. 5,00,000 paid in the accounting year relating to the assessment year 1981-82 for the professional work of directing motion pictures under production should not be taken into account ?" I. T. R. No. 404 of 1987 (CIT v. Uttam Chitra) (both the questions at the instance of the Revenue) Question No. 3 : "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee-firm which is engaged in production of film is an industrial undertaking engaged in the manufacture and production of an article within the meaning of section 80J(4)(iii) of the Income-tax Act Question No. 4 : "Whether, on the facts....
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....R. No. 624 of 1987) for the sake of convenience, and the decision in this case will apply to question No. 4 raised in Income-tax Reference No. 404 of 1987 as well. The assessee, Filmyug Private Limited, is a private limited company. The assessment years relevant for the purpose herein are assessment years 1979-80 and 1980-81. During the year under consideration the assessee had completed and released the picture "Apnapan", the cost of which was shown at Rs. 80,55,503.79. In the profit and loss account for the assessment year 1979-80, the assessee debited a sum of Rs. 7,31,838 under the head "Publicity in respect of picture Apnapan" included in the cost of production. Out of the said amount, a sum of Rs. 6,63,182 attracted the provisions of section 37(3A) of the Income-tax Act, 1961. As per the provisions of the said section, 15 per cent. of Rs. 6,63,182 had to be disallowed. Similarly, in the assessment year 1980-81, 15 per cent. of Rs. 1,60,776 had to be disallowed under the said provision. The assessee objected to the said disallowances on the ground that the provisions of section 37(3D) of the Income-tax Act were attracted. The Income-tax Officer did not agree with the ....
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....se of CIT v. Hyderabad Bottling Co. P. Ltd. [2000] 243 ITR 476 submitted that the benefit of section 37(3D) is available to every new product even if the industrial undertaking manufacturing the said new product has been functioning for several years. He submitted that for marketing every new picture advertisements and publicity expenses are required to be incurred and for the production of every new picture additional investments are made on the capital equipment. According to him, section 37(3D) applies to every new picture, irrespective of it being manufactured by an existing undertaking or by a newly set up under taking. Accordingly, he submitted that the Tribunal was in error in holding that the exemption under section 37(3D) of the Income-tax Act was not available to the assessee. Mr. R. V. Desai, learned senior counsel appearing on behalf of the Revenue, on the other hand, relying upon the decision of the Madras High Court in the case of CIT v. Ponds India Ltd. [2002] 253 ITR 686, submitted that an industrial undertaking which had been set up long prior and which had commenced manufacturing, several years earlier, cannot be regarded as industrial undertaking "set up" for ....
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....y articles, no disallowance will be made under this provision in respect of the expenditure incurred by the taxpayer for the purposes of the business of such undertaking for a period of three accounting years, namely, the accounting year in which such undertaking begins to manufacture or produce articles and the two accounting years immediately following that year." Section 37(3D) introduced by the Finance Act, 1978, reads as under : "(3D) In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assessee, for the purposes of the business of such undertaking, in the previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year." Thus, the provisions of sections 37(3A) to 37(3D) were introduced by the Finance Act, 1978, with a view to place a curb on extravagant and socially wasteful expenditure on advertisement, publicity and sales promotion. Section 37(3A) contemplated disallowance of....
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.... up an industrial undertaking" in conjunction with the words "in the previous year in which such undertaking begins to manufacture or produce such articles" occurring in section 37(3D) of the Act and hold that section 37(3D) applies only to such undertakings which are set up in the previous year in which the production of that article begins. In our opinion, section 37(3D) applies to (1) an industrial undertaking which is set up to manufacture or produce article, and (2) it is available to a product for three previous years commencing from the previous year in which the said undertaking begins to manufacture that product. Thus, section 37(3D) applies to every new product for three previous years, irrespective of the fact, whether the new product was manufactured by an existing undertaking or by a newly set up undertaking. The contention of the Revenue that section 37(3D) contemplates two conditions, i.e., (1) the setting up of an undertaking in the previous year, and (2) that undertaking begins to manufacture an article in the said previous year, cannot be accepted as it is too narrow a construction which is not contemplated under the section. Accepting the contention of the Revenu....