1995 (8) TMI 62 - HC - Income Tax

Advertisement Expenditure Business Expenditure Capital Or Revenue Receipt Question Of Fact Question Of Law

Summary

Issues:
1. Department's application under section 256(2) of the Income-tax Act, 1961 for direction to submit the statement of the case and refer questions of law.
2. Tribunal's refusal to refer questions of law to the High Court regarding assessment year 1985-86.
3. Dispute over the treatment of subsidy as a revenue receipt for taxation purposes.
4. Disallowance of advertisement expenses for recruitment of personnel under section 37(3A) read with section 37(3B) of the Act.
5. Tribunal's rejection of the Department's reference application under section 256(1) of the Act.

Analysis:
The High Court dealt with an application under section 256(2) of the Income-tax Act, 1961, where the Department sought a direction for the respondent to submit the statement of the case and refer questions of law to the High Court. The Tribunal had previously refused to make such a reference for the assessment year 1985-86, stating that no question of law arose from their findings. The respondent-assessee, a company, had initially filed a return showing a loss, which was later revised twice, claiming deductions based on changes in income classification. The Tribunal had allowed certain deductions, notably excluding a subsidy from taxable income, considering it a capital receipt. Additionally, the Tribunal directed the exclusion of specific advertisement expenses while making disallowances under relevant sections of the Act.

The primary issue revolved around the treatment of the subsidy received by the assessee as a revenue receipt for tax purposes. The Tribunal categorized the subsidy as a grant or gift from the State, not subject to taxation, emphasizing its purpose to aid industrial growth. This decision led to the exclusion of a substantial amount from the assessee's total income. Furthermore, the Tribunal directed the exclusion of specific advertisement expenses related to personnel recruitment during disallowance proceedings. These directions were based on the Tribunal's interpretation of relevant sections of the Income-tax Act.

The Department, dissatisfied with the Tribunal's decision, filed a reference application under section 256(1) of the Act, seeking a statement of the case and reference of legal questions to the High Court. However, the Tribunal rejected this application, asserting that their findings were factual and did not raise any legal issues. The High Court concurred with the Tribunal's assessment, finding no grounds to overturn the decision. Consequently, the Department's petition was dismissed, and no costs were awarded considering the circumstances of the case.