1992 (9) TMI 138 - AT - Income Tax

Summary

Issues: Disallowance of marketing overhead expenses, Disallowance of expenditure on advertisement and publicity, Disallowance of franchise fee and licence fees, Disallowance of expenses claimed under the head "Staff welfare and miscellaneous expenses", Disallowance of Rs. 23,79,000 on account of service charges

Disallowed Marketing Overhead Expenses, Advertisement and Publicity, Franchise Fee, and Licence Fees:
The appeal raised grounds related to the disallowance of marketing overhead expenses, expenditure on advertisement and publicity, and franchise fee and licence fees. However, these grounds were dismissed as not being pressed during the appeal hearing. The issues were not pursued, leading to their dismissal without further consideration.

Expenses Claimed under "Staff Welfare and Miscellaneous Expenses":
The Income Tax Officer (ITO) disallowed certain expenses under the head "Staff welfare and miscellaneous expenses" as they were deemed not wholly and exclusively for the business. The disallowances were confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the expenses were incurred to maintain good relations with employees and were thus allowable. Upon review, the Tribunal allowed some expenses related to staff welfare, reducing the disallowance to Rs. 10,652.35. Expenditure on staff welfare was found to be allowable, while expenses on dinners for guests were not considered business-related.

Disallowed Service Charges:
The appellant claimed Rs. 23,79,000 as service charges paid to another company for marketing assistance. The ITO invoked section 37(3A) of the Income Tax Act to disallow a portion of this amount. The CIT(A) upheld the disallowance but directed a reassessment considering other similar expenses. The Tribunal held that the payment was for brokerage or commission and not sales promotion, thus not falling under section 37(3A). Citing precedents, the Tribunal vacated the CIT(A)'s order and allowed the appeal partially, concluding that the payment was not subject to disallowance under the Act.

This detailed analysis covers the various issues involved in the legal judgment, outlining the arguments presented, the authorities' decisions, and the Tribunal's final ruling on each matter.