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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 ..... 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Appellate Tribunal was justified in law in holding that interest once granted under section 244(1A) cannot be withdrawn subsequently?"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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owells to its employees and this amount has not been incurred by the assessee as salary payable to its own employees. Therefore, in view of the specific provision contained in clause (b) of the Explanation appended to sub-section (3A) and sub-section (3B) of section 37 of the Act, the assessee is not entitled to claim such deduction on account of salary to the employees who are engaged with McDowells. On the other hand, it was urged by learned counsel for the respondents that the amount of expenses debited to the profit and loss account of the assessee as its share of marketing are not of any category inhibited by sub-sections (3A) and (3B) of section 37 of the Act is a fact which has been accepted by the Revenue and which is not disputed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1985-86. The provision as it stood in the statute book at relevant time reads as under: "37. (3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on anyone or more of the items specified in subsection (3B) exceeds one hundred thousand rupees, twenty per cent. of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'. Original sub-section was inserted by the Finance Act, 1978, with effect from April 1,1979, and was later omitted by the Finance (No.2) Act, 1980, with effect from April 1,1981. 37. (3B) The expenditure referred to in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (iii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and McDowells, the manufacturer of IMFL, certain expenses for running the business of manufacture and sale of Indian made foreign liquor were to be shared by the manufacturing company as well as by the selling agencies. Under the terms of the said agreement McDowells, has issued during the previous assessment year 1985-86, two debit notes, one amounting to Rs. 44,52,200 being the assessee's proportionate share of expenditure on advertisement and sales promotion and another debit memo was issued for Rs. 61,85,000 being the assessee's proportionate share of marketing overheads. The division of expenses incurred by McDowells and shared by the assessee proportionately under these two heads separately is not in dispute. This is also not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses 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 premises that called for consideration that the assessee is sharing in lumpsum proportionate expenses incurred by McDowells on total marketing infrastructure for sale of products of McDowells. Such expenditure includes expenditure on advertisement, publicity and sales promotion. The assessee is to pay a lumpsum amount as his proportionate share in the expenses. It is a matter of accounting details between the parties to satisfy the mutual trust abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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