1990 (8) TMI 94 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 37(3A) of the Income-tax Act regarding advertisement expenditure.
2. Application of section 37(3D) of the Act in determining a new industrial undertaking.

Analysis:
The judgment delivered by the High Court of Karnataka involved the interpretation of sections 37(3A) and 37(3D) of the Income-tax Act, 1961. The petitioner, an assessee, contested the disallowance of advertisement expenditure related to a new product named "Torino." The petitioner argued that the expenditure should be allowed under section 37(3A) due to investments in new machinery and capital goods, qualifying as a new industrial undertaking under section 37(3D). However, the court noted that the exception in section 37(3D) applies to new undertakings, and the petitioner, an established company, did not qualify as a new undertaking. The court emphasized that the mere investment in new machinery does not transform an old undertaking into a new one under section 37(3D). As all authorities, including the Tribunal, upheld the disallowance based on this factual finding, the court concluded that no legal question arose for reference under section 256(2) of the Act.

In essence, the court held that the petitioner's status as an old, established company precluded it from claiming the benefits of a new industrial undertaking under section 37(3D) of the Act. The court emphasized that the exception in section 37(3D) is reserved for newly established undertakings, and the petitioner's investment in machinery did not alter its existing status. Therefore, the disallowance of the advertisement expenditure was deemed appropriate, as supported by the factual findings upheld by all relevant authorities.

Ultimately, the court dismissed the petitioner's petition under section 256(2) of the Income-tax Act, 1961, as no legal question meriting consideration for reference to the court arose from the case. The judgment reaffirmed the principle that the exception under section 37(3D) applies to new industrial undertakings, and investments in machinery alone do not qualify an established company as a new undertaking under the Act.