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Issues:
- Interpretation of section 37(3A) of the Income-tax Act, 1961 regarding the deduction of expenditure on literature distributed to doctors. Analysis: The High Court of GAUHATI dealt with an application under section 256(2) of the Income-tax Act, 1961, where the Commissioner of Income-tax sought a reference under section 256(1) regarding the deduction of expenditure on literature distributed to doctors. The Revenue argued that the expenditure for printing calendars and literature should not have been allowed, claiming it was impermissible. The assessee, in response, detailed that the literature provided essential information about the medicines, their effects, and usage, primarily for medical practitioners. The court examined the literature and found that it contained basic information about the products/medicine, clinical pharmacology, indications, and contra-indications, meant for limited use by medical practitioners and laboratories. Both the Commissioner of Income-tax (Appeals) and the Tribunal concluded that such literature did not amount to advertisement, publicity, or sales promotion under section 37(3A) of the Act. The court referenced decisions from other High Courts, such as the Andhra Pradesh High Court, which held that expenditure essential for running a business and carrying on trade would not fall under advertisement, publicity, or sales promotion. The distribution of informative literature to medical professionals was deemed necessary for business operations. The Tribunal also relied on a decision by the Andhra Pradesh High Court, which upheld the exclusion of expenditure on free samples supplied to doctors from the disallowance under section 37(3A) of the Act. Furthermore, the court distinguished a decision by the Karnataka High Court, emphasizing that the expenditure in question was for educational literature, not for advertisement purposes. The court highlighted that the literature provided to doctors was for informational and educational purposes, not for inducing prescriptions or sales. It was noted that doctors required detailed information about medicines to effectively treat patients, and the literature served as a tool for enhancing their knowledge. The Commissioner of Income-tax (Appeals) correctly identified that the literature was not intended for the general public but specifically for medical professionals. Consequently, the court rejected the Revenue's application, affirming that the literature distribution was essential for the medical field and did not constitute advertisement or sales promotion within the scope of section 37(3A) of the Act.
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