2007 (9) TMI 244 - HC - Income Tax

Articles conditionally and presentation of the articles neither bear the name of the company nor its logo and hence, it cannot be treated as meant for advertisement - It was given under a definite scheme for promotion of sales and the items were to be presented by the assessee only on attaining some specific targets - rule 6B would not be attracted and hence, it would come within the trade promotion and not advertisement deduction allowed

Summary

Issues:
Interpretation of rule 6B in relation to trade promotion expenses and applicability to specific schemes.

Analysis:
The judgment in question revolves around the interpretation and application of rule 6B concerning trade promotion expenses incurred by an assessee engaged in the trading of breweries. The Assessing Officer disallowed certain expenditures under rule 6B, leading to an addition of a substantial amount to the assessee's income. The primary issue was whether the expenses claimed by the assessee for items like briefcases, silver fabrication work, and publicity materials fell under the purview of rule 6B and were disallowable. The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer's view, stating that the expenses were part of a specific scheme for promotion of sales and did not qualify for disallowance under rule 6B.

The Tribunal, upon hearing the appeal, endorsed the Commissioner's findings, emphasizing that the expenses were incurred under a scheme aimed at boosting sales and were not subject to disallowance under rule 6B. The Tribunal's decision was further supported by legal precedents, such as the case of CIT v. S. P. Textiles Co., which clarified that expenses incurred under incentive schemes do not fall under rule 6B. Additionally, the judgment referred to CIT v. Allana Sons Pvt. Ltd., highlighting that when articles are presented for business promotion rather than advertisement, rule 6B does not apply.

The High Court, after considering the arguments presented by both parties, concurred with the Tribunal's findings. It noted that the articles provided by the assessee were conditional and did not bear the company's name or logo, indicating they were not intended for advertisement. The court emphasized that the items were distributed under a specific sales promotion scheme, not as consumer or free gifts. Therefore, the court concluded that rule 6B was not applicable in this scenario, as the expenses were related to trade promotion and not advertisement. Consequently, the court ruled in favor of the assessee, affirming the Tribunal's decision and answering the reference in favor of the assessee and against the Revenue.