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TMI Blog2003 (5) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... RAJESH BALIA J. -Heard learned counsel for the parties. This appeal relates to the assessment year 1985-86. The order under appeal is a composite order passed on June 27,2001, in nine appeals by the Income-tax Appellate Tribunal, in respect of the assessment year 1985-86. According to the Revenue-appellant, the following two substantial questions of law arise in this appeal: "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the salary amounting to Rs. 29,80,610 will not fall within the ambit of section 37(3A), read with section 37(3B) even though the same was not paid to the employees of the assessee, overlooking the provisions of clause (b) of Explanation appended to section 37(3B) of the Income-tax Act? (2) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that interest once granted under section 244(1A) cannot be withdrawn subsequently?" So far as question No.2 is concerned, the decision of the Tribunal is based on a judgment of the Gujarat High Court in Cibatul Ltd. v. IAC of I.T. [1993] 201 ITR 507. The appeal again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to general marketing infrastructure and not any part of expenses envisaged under section 37(3B) is allowed in full, unless it could be said that the same is not actually incurred. In no circumstances can any part of expenses forming part of market expenditure in question be disallowed or reduced by invoking sub-sections (3A) and (3B) of section 37 of the Act. It was also urged that, what the assessee has incurred by way of marketing expenditure is one consolidated sum debited by McDowells Company. It has not incurred expenses on separate heads, e.g., since no part of expenses in question were spent by way of payment of salaries by the assessee to its employees. The details furnished by McDowells is only to justify and verify the amount of share demanded from the assessee as his share of total marketing expenditure. To understand the scheme and the arguments raised by learned counsel for the appellant, we deem it appropriate to reproduce the provisions of subsection (3A) and sub-section (3B)of section 37 which were introduced in the statute book by the Finance Act,1983, with effect from April 1,1984, and were omitted by the Finance Act,1985,with effect from April 1,1986. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) with which we are not concerned. Clause (b) of Explanation excludes from expenditure on advertisement, publicity and sales promotion any remuneration paid to employees of the assessee engaged in one or more of the said activities. In other words, even in case of computing expenditure incurred on advertisement, publicity or sales promotion, which may be subjected to restricted deduction under section 37(3A), the amount of salaries paid to employees in these activities, as salaries, is not to be included. To say otherwise, while considering the allowable expenditure under section 37, the restriction envisaged under section 37(3A), read with sub-section (3B) is not extended to the amount of salaries paid to persons employed in the activities relating to advertisement, publicity and sales promotion. Such expenditure on account of salaries paid to employees engaged in the said activities is to be considered as uninhibited allowable business expenditure, as any other expenses incurred wholly and exclusively for the purposes of the business, not otherwise specifically dealt with under the Act. The core of the issue in this appeal is whether the amount of salary which is the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is fallacious. Once the marketing expenditures are excluded from the purview of expenses on advertisement, publicity and sales promotion and such expenses do not fall in any other categories of expenditure detailed in sub-section (3B) of section 37, the question of invoking any part of section 37(3A), read with sub-section (3B) cannot arise. The Explanation relates to expenditure falling within the purview of expenses mentioned in clauses (i) to (iii) of sub-section (3B). When the principal amount of expenses does not come within the ambit of sub-section (3B) of section 37 of the Act, the invocation or exclusion of clause (b) of the Explanation is also ruled out. Therefore, in our opinion, it is obvious that on account of marketing overheads or salary component of marketing expenditure is not an expenditure governed by sub-section (3A) and sub-section (3B) of section 37. Such expenses cannot be disallowed by referring to the inapplicability of Explanation (b) on the ground that the employees to whom salaries have been paid were not the employees of the assessee. Apparently, the Assessing Officer as well as the Commissioner of Income-tax (Appeals) have overlooked the basic pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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