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2002 (10) TMI 59 - HC - Income Tax1. Whether, Tribunal was right in holding that the surtax payable by the assessee was not deductible in arriving at its total income for the year under consideration? - 2. Whether, Tribunal was justified in holding that the reimbursement of medical expenses by the assessee to its employees falls within the provisions of section 40A(5) as salary ? - 3. Whether,Tribunal was right in upholding the disallowance of Rs. 8,27,563 representing sales literature and miscellaneous promotional expenditure and Rs. 2,00,000 being sample expenses in view of section 37(3A)? - Tribunal on perusal of the pampahlets, booklets brought out by the assessee has rightly given a finding of fact to the effect that these expenses were in the nature of scientific information and that these expenses cannot be said to be expenses in the nature of advertisement, publicity and sales promotion, under section 37(3A) We hold that the expenditure incurred by the assessee on medical literature was expenditure on advertisement, publicity and sales promotion and as such includible for disallowance under section 37(3A). - We hold that the medical literature printed by the assessee was not in the nature of publication and distribution of journals within the meaning of section 37(3B)(vii)
Issues Involved:
1. Deductibility of surtax in computing income. 2. Classification of sales literature and promotional aids expenditure. 3. Classification of free sample expenditure. 4. Classification of reimbursement of medical expenses as salary. 5. Classification of expenses on printing and publication of pamphlets and booklets. Issue-wise Detailed Analysis: 1. Deductibility of Surtax in Computing Income: In I.T.R. No. 170 of 1987 and I.T.R. No. 31 of 1989, the issue was whether surtax payable by the assessee was deductible in computing the assessee's income under "Profits and gains of business or profession." The court held, aligning with the decision of the apex court in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, that surtax payable was not deductible, thus answering the question in favor of the Revenue. 2. Classification of Sales Literature and Promotional Aids Expenditure: In I.T.R. No. 170 of 1987, the court examined whether the expenditure of Rs. 8,61,010 on "sales literature and miscellaneous promotional aids" was on advertisement, publicity, and sales promotion under section 37(3A) of the Income-tax Act, 1961. The Tribunal found that the literature aimed at promoting sales by highlighting the superiority of the assessee's products, thus falling within the ambit of section 37(3A). The court upheld this view, stating that the expenditure was indeed for advertisement, publicity, and sales promotion. 3. Classification of Free Sample Expenditure: In I.T.R. No. 170 of 1987 and I.T.R. No. 31 of 1989, the issue was whether the estimated expenditure of Rs. 2,00,000 on samples distributed free of cost to medical practitioners was for advertisement, publicity, and sales promotion under section 37(3A). The court referred to the apex court's decision in Eskayef v. CIT [2000] 245 ITR 116, which held that free samples to doctors constitute publicity and sales promotion. The court concluded that the expenditure on free samples was includible for disallowance under section 37(3A). 4. Classification of Reimbursement of Medical Expenses as Salary: In I.T.R. No. 31 of 1989, the issue was whether the reimbursement of medical expenses by the assessee to its employees fell within the provisions of section 40A(5) as 'salary.' The court, following the decision of the apex court in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644, answered in favor of the Revenue, holding that such reimbursements were indeed classified as salary. 5. Classification of Expenses on Printing and Publication of Pamphlets and Booklets: In I.T.R. No. 460 of 1987 and I.T.R. No. 323 of 1988, the issue was whether expenses on printing and publication of pamphlets and booklets containing scientific information were to be included in advertisement, publicity, and sales promotion expenses. The court held that the medical literature printed by the assessee did not qualify as "journals" under section 37(3B)(vii) and thus were includible for disallowance under section 37(3A). However, in I.T.R. No. 323 of 1988, the Tribunal's finding that these expenses were scientific information and not for advertisement, publicity, or sales promotion was upheld, answering in favor of the assessee. Conclusion: The court answered the questions in each reference as follows: - I.T.R. No. 170 of 1987: - Question 1: In favor of Revenue. - Question 2(a): In favor of Revenue. - Question 2(b): In favor of Revenue. - Question 3: In favor of Revenue. - I.T.R. No. 31 of 1989: - Question 1: In favor of Revenue. - Question 2: In favor of Revenue. - Question 3: In favor of Revenue. - I.T.R. No. 460 of 1987: - Question: In favor of Revenue. - I.T.R. No. 323 of 1988: - Question: In favor of Assessee. All references were disposed of accordingly, with no order as to costs.
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