1999 (4) TMI 12 - HC - Income Tax

Summary

Issues:
1. Deduction of gratuity liability under sections 28 and 37 of the Income-tax Act.
2. Disallowance of expenses incurred for supply of danglers, posters, and streamers under section 37(3A) of the Income-tax Act.

Analysis:

*Issue 1: Deduction of Gratuity Liability*
The first issue pertains to the deduction of gratuity liability by the assessee under sections 28 and 37 of the Income-tax Act. The liability projected for the previous year was not actually discharged during the relevant assessment year. The court noted that prior to the insertion of section 40A(7), the claim for increased gratuity liability was governed by sections 36 and 37. However, with the introduction of section 40A(7), deductions for gratuity can only be allowed under specific conditions. The court cited the Supreme Court's ruling in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 to support the position that non-compliance with section 40A(7) disallows such deductions. As the assessee did not comply with the conditions specified in section 40A(7), the court ruled in favor of the Revenue, disallowing the gratuity liability deduction.

*Issue 2: Disallowance of Expenses for Supply of Danglers, Posters, and Streamers*
The second issue revolves around the disallowance of expenses incurred by the assessee for supplying danglers, posters, and streamers to dealers under section 37(3A) of the Income-tax Act. The provision required a reduction in aggregate expenditure on advertisement, publicity, and sales promotion if it exceeded a specified amount. The assessee argued that these expenses were part of selling expenses and not for advertisement or publicity. The Tribunal examined the items and concluded that they served the purpose of advertisement and publicity by attracting consumers. The court held that determining whether an item attracts consumers or aids in selling is a question of fact, not law. Since the Tribunal's conclusion was based on factual analysis, the court declined to answer this question as it did not involve a legal issue.

In conclusion, the court disposed of the reference, ruling in favor of the Revenue regarding the gratuity liability deduction and declining to address the issue of disallowance of expenses for supply of danglers, posters, and streamers, as it was deemed a question of fact, not law.