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2003 (1) TMI 63 - HC - Income TaxBusiness Expenditure - Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of sub-section (3D) of section 37 of the Income-tax Act, 1961, were not applicable in respect of the expenditure on publicity for sales promotion incurred by the assessee in the assessment years 1979-80 and 1980-81 ? Held, no - 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 ? Held, yes
Issues Involved:
1. Applicability of Section 37(3D) of the Income-tax Act, 1961, to expenditure on publicity for sales promotion. 2. Computation of disallowance under Section 40(c) of the Income-tax Act, 1961, in respect of remuneration to the managing director. 3. Classification of a film production firm as an industrial undertaking under Section 80J(4)(iii) of the Income-tax Act. 4. Entitlement to the benefit of Section 37(3D) and deletion of expenses incurred on advertisement and publicity under Section 37(3A). Detailed Analysis: Issue 1: Applicability of Section 37(3D) to Expenditure on Publicity for Sales Promotion The Tribunal held divergent views on Section 37(3D). In the case of Filmyug Pvt. Ltd., the Tribunal held that the exemption under Section 37(3D) was not available since the assessee had been in existence for several years. Conversely, in the case of Uttam Chitra, the Tribunal held that each picture is a new product, and thus, the exemption under Section 37(3D) is available to each picture, even if the undertaking had been in existence for several years. The court concluded that Section 37(3D) applies to every new product for three previous years, irrespective of whether the product was manufactured by an existing or a newly set up undertaking. The court disagreed with the Tribunal's decision in Filmyug Pvt. Ltd. and held that the exemption under Section 37(3D) was available to the assessee. Thus, question No. 1 was answered in the negative and in favor of the assessee. Issue 2: Computation of Disallowance under Section 40(c) Counsel on both sides agreed that this issue was covered by the decision in Nav Ketan International Films Pvt. Ltd. v. CIT, which favored the assessee. Consequently, the court answered question No. 2 in the affirmative and in favor of the assessee. Issue 3: Classification as an Industrial Undertaking under Section 80J(4)(iii) Similarly, both sides acknowledged that this issue was covered by the decision in CIT v. D. K. Kondke, which also favored the assessee. Therefore, the court answered question No. 3 in the affirmative and in favor of the assessee. Issue 4: Entitlement to Benefit under Section 37(3D) and Deletion of Expenses under Section 37(3A) The court noted that the Tribunal had divergent views on the interpretation of Section 37(3D). The court held that the benefit of Section 37(3D) is available to every new product for the first three previous years, including the year in which the production begins. The court concurred with the decision in the case of Uttam Chitra and held that the benefit under Section 37(3D) was available, thus answering question No. 4 in the affirmative and in favor of the assessee. Conclusion: - Question No. 1: Answered in the negative and in favor of the assessee. - Question No. 2: Answered in the affirmative and in favor of the assessee. - Question No. 3: Answered in the affirmative and in favor of the assessee. - Question No. 4: Answered in the affirmative and in favor of the assessee. Both references were disposed of with no order as to costs.
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