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TMI Blog2015 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. The question of law that arises for this Court's determination is as follows: "Did the ITAT fall into error in holding that the sum of Rs. 4,94,09,120/- incurred by the assessee could not be termed as business expenditure and was not incurred on account of commercial expediency within the meaning of the term under Section 37(1) of the Income Tax Act?" 2. The assessee is a wholly owned subsidiary of M/s. Tupperware Asia Pacific Holdings Pvt. Ltd., Mauritius which holds 99% of its equity share capital. The remaining 1% is held by M/s. Tupperware Home Parties Inc., USA. The group as a whole owns the brand name 'Tupperware' and carries out business activities through various subsidiaries in various parts of the world. 3. Accordingly, the assessee from time to time had entered into Contract Manufacturing Agreements with Dart and ITL for manufacture of Tupperware plastic tableware and kitchenware products. The designs of the Tupperware products are patented and, therefore, the moulds used to manufacture these products are not available in the open market. Therefore, the Company provides the requisite moulds to Dart and ITL on a 'free of cost basis' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20/- levied by the Customs & Excise Settlement Commission as contractual obligation towards the contract manufacturers..." 8. The Assessment Order under Section 143(3) of the Act was passed by the Assessing Officer ("AO") on 18.12.2009 holding that the liability of additional excise duty borne by the assessee herein was not an allowable deduction under Section 37(1) of the Act. While disallowing the expenditure incurred by the assessee, the AO arrived at the following conclusions:- (a) As per the two contracts entered into between the assessee on the one hand and Dart and ITL on the other, liability of taxes and duties was that of Dart/ITL and not of the assessee. (b) Assessee has colluded with Dart/ITL to take their liability upon itself and reduce its taxable income. (c) AO noted that the assessee was also a co-applicant before the CESC and no liability was fixed against it. (d) The liability of additional excise duty related back to the period from April 2000 to December 2004 in case of Dart and August 2002 to December 2004 in case of ITL. Therefore, the expenditure cannot be claimed in the year under consideration, i.e., AY 2007-08. 9. Aggrieved, the assessee preferred an Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CESC, which noted that the contract manufacturers were "manufacturers of plastic table ware and kitchen ware for M/s Tupperware India Pvt. Ltd. on job work basis". Reliance is placed on the decision of this Court in CIT v. Dalmia Cement (P.) Ltd., 254 ITR 377 (Delhi), approved by the Supreme Court in S.A. Builders Ltd. v. CIT, [2008] 288 ITR 1. 11. Learned counsel submits that the ITAT as well as the CIT(A) failed to acknowledge that the term 'wholly' in Section 37(1) cannot be read as 'necessarily'. 'Wholly' refers to quantum of expenditure and 'exclusively' refers to motive, objective or purpose with which the particular expense was incurred. He places reliance on the Supreme Court's decision in Sassoon J. David & Co. Pvt. Ltd. v. CIT, (1979) 118 ITR 261 (SC), wherein the Apex Court observed that as a matter of fact, initially the word 'necessarily' found place in the Income Tax Bill, 1961, but was expunged by legislature in favour of expression 'wholly and exclusively'. 12. Assessee submits that the term 'commercial expediency' is not a term of art. It means everything that serves to promote commerce and includes e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the ITAT's order disallowing the expenditure claimed by the assessee cannot be faulted with. Analysis and Conclusions 16. At the outset, this Court notes that the pre-requisites for allowability of deduction of expenditure as business expenditure under Section 37(1) of the Act are as follows: (a) Expenditure should not be covered under section 30 to 36 of the Act; (b) Expenditure should not be of capital or personal nature; (c) Expenditure should be made wholly and exclusively for the purposes of business; (d) Expenditure should be incurred during the previous year; (e) Expenditure should not be incurred for any purpose which is an offence or which is prohibited by the law. 17. This Court in its recent decision in CIT v. Tupperware India Pvt. Ltd., [2015] 229 Taxman 318, was called upon to decide, inter alia, the allowability of expenditure towards rent paid for moulds provided by the assessee herein to the contract manufacturers. The Court noted the aforesaid requirements for claiming deduction under Section 37(1) of the Act and observed as follows: "'For the purpose of business' is a word of wide import and includes expenditure which a businessman incurs for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. We also agree with the ld. CIT(A) that even if for the sake of argument. if it was to be presumed that the payment of mould rentals is the liability of the contract manufacturers and so incurred by them in that case the cost of such mould rentals would be part of 'purchases' as it would increase the production cost of the contract manufacturer and accordingly, the purchase price bargained by the appellant would be increased by the same amount of mould rental. Thus, in the above situation the assessee would not incur rental expenses, but will have to pay resultant higher purchase price to the contract manufacturer. Thus the position in the hands of the assessee will be that the net effect on revenue would be the same. Hence, the situation would be revenue neutral." 21. This Court fails to understand as to how the above rationale applied by the ITAT to allow the deductibility of rental expenditure cannot be extended to the expenditure on additional excise duty incurred by the assessee. If, instead of the assessee, the additional excise duty were to be borne by the contract manufacturers, the contract manufacturers would have accounted for that amount in the purchase pri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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