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TMI Blog2009 (2) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... by Commissioner (Appeals) and Tribunal. Held that- the amount spent by the unit towards purchase of that liquor was reimbursed by the assessee not to any individual but to the Army Unit itself which went into the coffer of the Government. There was no bar in taking such reimbursement as evidenced by receipt. Thus the amount spent by way of commercial expediency for promoting the assessee’s product. It was deductible. Thus allow the appeal. - 549/05 - - - Dated:- 17-2-2009 - FERDINO I. REBELLO and MOHITE R. S. JJ. S.N. INAMDAR WITH P.C. Tripathi for the appellant. Vimal Gupta with P.S. Sahadevan for the respondent. Judgment: F. I. Rebello J .- Admit on the following questions: "(i) Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that reimbursement made to a unit of Government of India by cheque is against public policy.? (ii) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the expenditure incurred by the appellant for sales promotion is not allowable under section 37 on the ground that it is allegedly in the nature of unlawful considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the company. The Assessing Officer has totally overlooked the fine distinction between entertainment and promotion and consequently has erred in holding this expense as entertainment. 3. As may be noted the Assessing Officer disallowed the sale promotion expenses of Rs. 3,80,036 on account of liquor supplied at the time of Canteen Stores Department parties on the ground that it was clear entertainment of the customers. In appeal preferred before the Commissioner of Income-tax (Appeals) the learned Commissioner of Income-tax (Appeals) was of the opinion that the expenses are incurred no doubt for promotion of the appellant's product but through wrongful measures prohibited by which are not for public good and hence against public policy. Under these circumstances, the expenditure was disallowed as deduction. 4. It will thus be clear from the finding of the Commissioner of Income-tax (Appeals) that it proceeded on the footing that the expenses are incurred for promotion of the appellant's product. 5. The assessee aggrieved by the said order preferred an appeal before the Tribunal. The learned Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). It, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, is whether the reimbursement of the liquor drawn and paid by the regiment/unit on an occasion like celebrating the regiment' s annual day which is reimbursed can be said to be against the public policy. The Commissioner of Income-tax (Appeals) himself has accepted that the amount is spent for the purpose of promoting the sales. That finding has not been reversed by the Tribunal. 9. We may gainfully refer to some of the judgments which were cited at the Bar. In Maddi Venkataraman and Co. P. Ltd. v. CIT [1998] 229 ITR 534 (SC) a search was conducted in the assessee' s business premises. From the documents seized it was disclosed that the assessee had indulged in transaction in violation of the provisions of the Foreign Exchange (Regulation) Act (for short "FERA"). It was found that the assessee had remitted foreign exchange to a private party in Singapore in violation of law. In proceedings initiated for infringement penalty was imposed. The assessee claimed deduction of a specified sum as expenditure/loss. It had, according to the assessee, accumulated 329.2 tonnes of substandard quality tobacco which it could not export over the last three years. As it was substandard it cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Welfare Fund, still the contribution made in pursuance of the scheme which was evolved by the association in consultation with the District Collector would show that an advantage would ensue on the payment of the contribution and, therefore, the deduction was allowable under section 37(1) of the Act. The Tribunal further held that such contribution could not be held to be opposed to public policy. The matter was referred to the High Court at the instance of the Revenue. There was a question referred to at the instance of the assessee also. The High Court held that the contribution to the Welfare Fund was a precondition and hence the assessee was right in contending that it was a compulsory payment. It, however, disallowed the deduction as being opposed to public policy. The Supreme Court noted that this was not a case of the assessee paying a bribe or any contribution by way of illegal gratification. The court first noted that the principles whether such payment can be regarded as being allowable as business expenditure. It noted that long ago as in the case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), it was observed that (page 191) "a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly purchase liquor from a manufacturer. Liquor had to be purchased through the Canteen Stores Department. This was done by the army unit. The second aspect was that the amounts spent by the unit towards purchase of that liquor was reimbursed by the assessee not to any individual but to the army unit itself and which went into the coffers of the Government. There was no bar in taking such reimbursement as evidenced by receipt. In other words, such a contract is not prohibited by law nor was it in the nature of bribe to an officer or to an accountant. As noted earlier, public policy would involve that income and the expenditure is from an activity which is prohibited by law or is immoral. Only then the expenditure could have been disallowed. In the instant case, the amount has been spent by way of commercial expediency for promoting the assessee's products. The finding is that this is by way of sales promotion. Such an expenditure is not against public policy. Once that be the case the deduction is allowable. 14. In the light of that question Nos. (i) and (ii) will have to be answered in the negative against the Revenue and in favour of the assessee. The appeal disposed of accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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