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Issues:
1. Interpretation of section 37(3A) of the Income-tax Act, 1961 regarding the exclusion of expenditure on distribution of free samples in computing disallowance. Analysis: The case involved a dispute regarding the applicability of section 37(3A) of the Income-tax Act, 1961 to the expenditure incurred by an assessee on distributing free samples of drugs to doctors. The assessee claimed that the samples were for testing the efficacy of the products and not for advertisement or sales promotion. The Assessing Officer disagreed, considering the distribution as a form of advertisement and sales promotion, leading to the disallowance under section 37(3A). The Commissioner of Income-tax (Appeals) upheld the decision, but the Tribunal, citing a judgment of the Andhra Pradesh High Court, ruled in favor of the assessee. Subsequently, the Department appealed to the High Court under section 260A of the Act. In its findings, the High Court referred to the Supreme Court's decision in Eskayef v. CIT [2000] 245 ITR 116, which held that even in the case of ethical or prescription drugs, distributing samples to doctors constituted publicity and sales promotion falling under section 37(3A). The Supreme Court overruled the Andhra Pradesh High Court's judgment cited by the Tribunal. The Court rejected the assessee's argument for remitting the case back to the Tribunal, noting that no opportunity was taken to prove that the samples were solely for testing new drugs. The Court emphasized that the assessee failed to provide details on whether the expenditure was for old or new drugs, leading to the application of the Supreme Court's ruling in Eskayef v. CIT [2000] 245 ITR 116. Consequently, the High Court answered the question in the negative, favoring the Department and ruling against the assessee. The appeal was allowed with no order as to costs.
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