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Issues:
Validity of sub-sections (3A), (3B), (3C), and (3D) of section 37 of the Income-tax Act, 1961 challenged in a writ petition. Detailed Analysis: The petitioner, a company engaged in the manufacture and sale of medicinal products, challenged the validity of sub-sections (3A), (3B), (3C), and (3D) of the Income-tax Act, 1961, concerning the disallowance of part of the expenditure on advertisements. The petitioner argued that these sub-sections did not reflect a rational classification in relation to the objects of the Act. The petitioner contended that large established industries were treated the same as small industries, irrespective of the products manufactured, leading to arbitrary disallowance of advertisement expenditures. The fixation of a Rs. 1 lakh limit was also challenged as arbitrary and lacking nexus to the Act's objectives. The petitioner relied on the case of British Electrical and Pumps (P.) Ltd. v. CIT [1977] 106 ITR 620 (Cal) to support their arguments. However, the court found that this case did not advance the petitioner's position. The court emphasized that the income assessed for tax should not be measured by expenditure, and deductions could only be claimed if provided by statute. Parliament's grouping of all advertisements under one head and the uniform allowance or disallowance, irrespective of the product being advertised, was deemed reasonable and not unconstitutional. The court referenced the decision in Mysore KirlosKar Ltd. v. Union of India [1986] 160 ITR 50, where the Karnataka High Court upheld the validity of the same sub-sections, stating they did not violate the Constitution and were in the public interest. The court also cited Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97, emphasizing Parliament's wide discretion in taxation matters. Additionally, Hoechst Pharmaceuticals Ltd. v. State of Bihar [1985] 154 ITR 64 highlighted the Legislature's authority in determining tax policies based on economic criteria. In conclusion, the court rejected the petitioner's complaints, affirming the validity of the sub-sections in question. The court agreed with the Karnataka High Court's views and dismissed the writ petition, emphasizing that the sub-sections aimed to provide a uniform approach to advertisement expenditure deductions. The court found no grounds to invalidate the law based on the petitioner's arguments regarding product manufacturing distinctions. No costs were awarded in this matter.
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