1984 (6) TMI 266 - AT - Income Tax

Summary

Issues:
1. Disallowance of advertisement expenses under Section 37(3A) of the Income-tax Act, 1961.
2. Applicability of Section 37(3D) regarding industrial undertaking for film production.

Analysis:

Issue 1: Disallowance of advertisement expenses under Section 37(3A)
The dispute in this case revolves around the disallowance of Rs. 2,21,839 from the advertisement expenses incurred by the assessee, a film producer, for the assessment year 1980-81. The Income Tax Officer (ITO) disallowed a portion of the expenses under Section 37(3A), which allows for the disallowance of a percentage of total expenditure. The assessee argued that the disallowance was not justified under Section 37(3D) or, alternatively, should be limited to a lower amount. The Commissioner (Appeals) rejected the assessee's claims, leading to the department's appeal.

Issue 2: Applicability of Section 37(3D) regarding industrial undertaking for film production
The Commissioner (Appeals) rejected the assessee's argument that each film constituted a separate industrial undertaking under Section 37(3D). However, the Commissioner accepted the contention that since the films were started in 1978, the provisions of Section 37(3A) introduced in 1979 did not apply. The department argued that the starting year of production was irrelevant, and the provisions of Section 37(3A) should apply. The assessee's counsel contended that each film required a separate industrial setup and emphasized the importance of the word 'such articles' in Section 37(3D) to support their interpretation.

Judgment:
The Appellate Tribunal held that the provisions of Section 37(3A) applied to the case, despite the films' production starting in 1978. However, the Tribunal found that Section 37(3D) was applicable, considering each film as a separate industrial undertaking. The Tribunal's interpretation was supported by equitable grounds, emphasizing the necessity of full advertisement expenditure for new products like films. Consequently, the departmental appeal was dismissed based on the applicability of Section 37(3D, albeit for different reasons than the Commissioner (Appeals) decision.