1997 (8) TMI 93 - AT - Income Tax

Summary

Issues:
- Whether the expenditure incurred by the assessee-company on literature and related matters constitutes advertisement expenditure.

Analysis:
The case involved a crucial issue regarding the nature of expenditure incurred by an assessee-company engaged in manufacturing drugs & medicines, specifically focusing on whether the expenses on literature and related matters should be classified as advertisement expenditure. The Assessing Officer disallowed an expenditure of Rs. 1,57,149, considering it as advertisement expenses based on the decision of the Karnataka High Court in a similar case. The CIT(Appeals), however, held that the distribution of literature to doctors aimed at providing information about medicines, thus categorizing the expenses as educational rather than promotional. The CIT(Appeals) emphasized the distinction between free samples and educational literature, supporting the assessee's position.

During the appeal, the Revenue contended that the literature distribution was solely for promoting product sales, aligning with the Karnataka High Court's decision. Conversely, the assessee's counsel argued that the literature provided essential information about medicines to doctors for educational purposes, citing the judgment of the Andhra Pradesh High Court in a similar case. The Tribunal analyzed the nature of advertisement and sales promotion, highlighting that disseminating information to a specific audience does not necessarily constitute advertisement. The Tribunal relied on the Andhra Pradesh High Court's decision, emphasizing that expenditure on educating doctors about the efficacy of drugs falls within the scope of essential business activities, not advertisement.

Ultimately, the Tribunal dismissed the Revenue's appeal, concluding that the literature expenditure by the assessee did not amount to advertisement expenses as it focused on disseminating knowledge rather than promoting products. The Tribunal distinguished the case from the Karnataka High Court's decision, emphasizing the educative nature of the literature distributed. The judgment underscored the importance of understanding the purpose and content of expenses to determine their classification accurately, aligning with the Andhra Pradesh High Court's precedent.