2006 (11) TMI 162 - HC - Income Tax

Disallowance u/s 37 - expenses incurred on sponsorship Of tournament - activity of sports - element of publicity or advertisement - HELD THAT - It is no gainsaying that sponsoring of a tournament in which the display of the sponsor's name and banners with the name of the assessee-company attached with the trophy would receive wide publicity through newspaper reports and, in itself, thus establishes the advertisement value which the assessee will get to promote its business. We are in agreement with the Tribunal's finding that the expenses incurred by the assessee for sponsoring the trophy had the ingredient of advertisement of its business and, consequently, the assessee's claim to deduction as expenses wholly and exclusively incurred for the purpose of its business is justified. It will be profitable to notice here that the Tribunal itself has confirmed disallowance of deductions in respect of a benefit match in the assessment order of the previous year in which neither the name of the assessee was published in the brochure issued on the eve of the benefit match nor was it established by any evidence that such expenditure was in the nature of business advertisement. Thus, the distinction reflects the real nature of the sponsorship value. Where the sponsorship carries the advertisement of the business it carries advertisement value for promoting the business. Thus, this appeal fails and is hereby dismissed.

Issues:
1. Disallowance of expenses for sponsorship of State Polo Club tournament.
2. Depreciation on imported motor cars.
3. Higher rate of depreciation on Indian cars.

Issue 1: Disallowance of expenses for sponsorship of State Polo Club tournament

The appeal questioned the legality of deleting the disallowances of Rs. 1,50,000 made by the Assessing Officer for sponsoring a tournament. The Tribunal found the sponsorship to be motivated by business interest, providing high potential advertisement value for the business. The Tribunal concluded that the activity was part of the business, contributing to business promotion. The court supported the Tribunal's decision, noting that sponsorship of tournaments is a common business promotion activity worldwide. Citing a precedent, the court emphasized the advertisement value derived from such sponsorships, justifying the deduction claimed by the assessee. The court dismissed the appeal, upholding the Tribunal's decision regarding the sponsorship expenses.

Issue 2: Depreciation on imported motor cars

The questions regarding depreciation on imported motor cars and Indian cars were resolved in favor of the assessee based on a previous judgment in a similar case. The court referred to a judgment in CIT v. Lake Palace Hotels and Motels P. Ltd., where the claim for depreciation on imported and Indian cars was allowed. The court found no merit in challenging the Tribunal's decision on depreciation rates for cars, as established in the previous judgment. Therefore, the court upheld the Tribunal's decision on allowing depreciation for imported and Indian cars at the rates claimed by the assessee.

Issue 3: Higher rate of depreciation on Indian cars

Similar to the second issue, the question of entitlement to a higher rate of depreciation on Indian cars was also decided in favor of the assessee based on the previous judgment in CIT v. Lake Palace Hotels and Motels P. Ltd. The court reiterated that the claim for higher depreciation on Indian cars was justified, as established in the earlier judgment. Therefore, the court upheld the Tribunal's decision on allowing the higher rate of depreciation on Indian cars claimed by the assessee.

In conclusion, the High Court of Rajasthan upheld the Tribunal's decisions on all issues raised in the appeal. The disallowance of expenses for sponsoring a tournament was deemed justified for business promotion, while the claims for depreciation on imported and Indian cars were supported by previous judgments in similar cases. The court dismissed the appeal and awarded no costs.

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