2002 (11) TMI 26 - HC - Income Tax

1. Whether, Tribunal was right in holding that the assessee-company is entitled to investment allowance under section 32A on machinery leased out in the course of its business of leasing? Held that assessee-company is entitled to investment allowance under section 32A of the Act on machinery leased out in the course of its business of leasing. - 2. Whether, Tribunal was right in law in holding that the expenditure incurred on advertisement inviting fixed deposits from public does not form part of the sales promotion expenses calling for disallowance under section 37(3A)? - Since there is a statutory compulsion on the assessee-company to advertise the notice calling for deposits from the public, the expenditure on advertisements is revenue in nature. We hold that the Appellate Tribunal was correct in holding that the expenditure incurred for inviting deposits from the public does not form part of the sales promotion expenses. Accordingly, we answer the second question of law in the affirmative

Summary

Issues:
1. Entitlement to investment allowance under section 32A of the Act on machinery leased out in the course of business of leasing.
2. Allowability of expenditure incurred on advertisement inviting fixed deposits from public under section 37(3A) of the Income-tax Act.

Analysis:
1. The first issue pertains to the entitlement of investment allowance under section 32A of the Act on machinery leased out in the course of business of leasing. The court noted that the issue was covered against the Revenue by a decision of the Supreme Court in a previous case. Following the Supreme Court decision, the court ruled in favor of the assessee, holding that the investment allowance was indeed applicable in this case.

2. The second issue revolves around the allowability of expenditure incurred on advertisement inviting fixed deposits from the public under section 37(3A) of the Income-tax Act. The Revenue contended that the expenditure on advertisements for fixed deposits constituted sales promotion expenses and should be disallowed under section 37(3A). The Revenue relied on previous court decisions to support their argument. However, the assessee argued that the expenditure was in compliance with the Companies Act and therefore should be considered allowable business expenditure. The court analyzed the statutory provisions of the Companies Act, specifically section 58A, which mandates the advertising of deposit notices in a prescribed manner. The court held that since the expenditure was incurred in compliance with statutory requirements, it did not fall under sales promotion expenses as per section 37(3A) of the Income-tax Act.

3. The court further referenced relevant case law, including decisions by the Supreme Court and High Courts, to support its interpretation. It highlighted that the purpose of sections 37(3A) and 37(3B) of the Income-tax Act was to restrict extravagant and socially wasteful advertisement expenses. The court also considered circulars issued by the Central Board of Direct Taxes, emphasizing that such circulars would bind the Department. Ultimately, the court upheld the Appellate Tribunal's decision, ruling that the expenditure on inviting deposits from the public did not qualify as sales promotion expenses under section 37(3A) of the Income-tax Act.

In conclusion, the judgment addressed the issues of investment allowance entitlement and the allowability of advertisement expenditure comprehensively, providing detailed analysis based on statutory provisions, case law, and circulars issued by the tax authorities. The court's decision was based on the interpretation of relevant laws and regulations, ensuring a fair and reasoned outcome in favor of the assessee.