AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2007 (6) TMI 199
X X X X Extracts X X X X
X X X X Extracts X X X X
....ufactured by its sister concern, for which the assessee is the distributor and selling agent, is allowable as the assessee's business expenditure ?" under the following facts and circumstances of the case. 2. The assessment year involved in this appeal is 1996-97. The assessee is a private limited company engaged in the business of trading in scouring powder, pickles, etc. During the relevant assessment year, the assessee claimed expenditure for advertisement of pickles marketed by it, which are manufactured by its sister concerns. But, the Assessing Officer noting that the advertisement expenditure includes a sum of Rs. 25,69,405 towards expenditure incurred for promoting the products manufactured by its sister concerns and observing that....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it was required to bear the cost of exhibition, display and screening of advertisements, the said letter dated March 31, 1995, is only a self-serving evidence and in the absence of any validly executed agreement or understanding between the assessee and its sister concerns, the expenditure incurred towards display and screening of advertisements during exhibition cannot be allowed and thus, dismissed the appeal by his order dated October 15, 1999. 4. On further appeal by the assessee, the Income-tax Appellate Tribunal, while appreciating the contentions made on behalf of the assessee that the assessee-company is engaged in the business of trading in scouring powder, pickles, etc. manufactured by its sister concerns and operating its busin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 6. A careful reading of section 37(1) of the Act makes it clear that for allowing any expenditure while computing the income chargeable under the head "Profits and gains of business or profession", such expenditure must be (a) laid out wholly and exclusively for the purposes of the business or profession, and (b) must not be (i) capital expenditure, (ii) personal expenses, and (iii) an allowance of the character described in sections 30 to 36 of the Act. 7. A Full Bench of the apex court in CIT v. Malayalam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tured by its sister concerns, but also engaged in the business of trading in scouring powder, pickles, etc. In other words, the marketing of the products manufactured by M/s. Telkar Food Products P. Ltd., by itself, is a trade undertaken by the assessee and the expenses in question claimed by the assessee are the expenses incurred during the course of such marketing. 9. In the above said decision, Justice Subba Rao, as he then was, speaking for the Full Bench of the apex court, placed reliance on the decision of the King's Bench in Southern (H. M. Inspector of Taxes) v. Borax Consolidated Ltd. [1942] 10 ITR (Supp) 1, whereunder it was held that the amount spent wholly and exclusively for the purpose of the company's trade was an allowable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....city as a businessman in marketing the products by itself. 12. The above well-settled legal position are being recapitulated by several decisions, as stated hereunder : Justice Shah, as he then was, speaking for the Full Bench of the apex court in Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277, held that to claim the expenditure incurred as a permissible deduction under section 10(2)(xv) of the old Act, (now under section 37(1) of the Act), there must be a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader, and not as owner of assets even if they are assets of the business. It is thus held that the nature of the expenditure or outg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It was further held that the fact that somebody other than the assessee (like in the instant case, the sister concerns) is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the old Act (now section 37(1) of the Act), if it satisfies otherwise the tests laid down by law, referred to above. 15. Recently, the apex court, in S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1, interpreting the words "for the purpose of business" used in section 37(1) of the Act, while computing the income chargeable under the head "Profits and gains of business or profession", reiterated its earlier views referred to above and held that such expenditure is to be tested ....