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TMI Blog2002 (10) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee on medical literature was expenditure on advertisement, publicity and sales promotion and as such includible for disallowance under section 37(3A). - We hold that the medical literature printed by the assessee was not in the nature of publication and distribution of journals within the meaning of section 37(3B)(vii) - - - - - Dated:- 30-10-2002 - Judge(s) : S. H. KAPADIA., J. P. DEVADHAR. JUDGMENT The judgment of the court was delivered by J.P. DEVADHAR J.-All these four income-tax references under section 256(1) of the Income-tax Act, 1961, were heard together and are disposed of by this common judgment, as common issues are involved in all these references. The questions raised in each of the references are as follows: The questions raised at the instance of the assessee. I.T.R. No. 170 of 1987: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the surtax payable by the assessee was not deductible in computing the assessee's income under the head 'Profits and gains of business or profession'? 2. (a) Whether, on the facts and in the circumstances of the case, the Tribunal was right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the expenses on advertisement, publicity and sales promotion for the purpose of disallowance under section 37(3A) of the Income-tax Act, 1961?" I.T.R. No. 323 of 1988: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the expenses in bringing out pamphlets, booklets, etc., on various diseases and the effect of various medicine manufactured by the assessee-company for the use of the medical profession were expenses on scientific information which cannot be said to be expenses on advertisement, publicity or sales promotion and consequently cannot be included in those expenses for the purpose of making the disallowance under section 37(3A) of the Income-tax Act, 1961?" Counsel for both the sides agree that the issue raised in question No. 1 in I.T.R. No. 170 of 1987 and I.T.R. No. 31 of 1989 is covered by the decision of the apex court in the case of Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581 in favour of the Revenue. Similarly, counsel for both the sides agree that the issue raised in question No. 2 in I.T.R. No. 31 of 1989 is covered by the decision of the apex court in the case of CIT v. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, held that in order to promote the sales of the appellant's products, it was necessary to give wide publicity among members of the medical profession by setting out the comparative advantages of their products over the products manufactured by other competitors in the field. Accordingly, the Commissioner of Income-tax (Appeals) held that the expenditure of Rs. 8,61,010 incurred by the assessee was nothing but expenditure on advertisement, publicity and sales promotion and, therefore, would squarely fall under section 37(3A) of the Act. Before the Commissioner of Income-tax (Appeals), counsel for the assessee further contended that part of the sales, literature expenditure of Rs. 8,61,010 represented expenditure on catalogues and price lists and such expenditure being covered by section 37(3B)(vii) would certainly be out of the purview of section 37(3A). Since the assessee was unable to quantify the amount of costs incurred on printing catalogues and price list and submitted it to be about 20 per cent., the Commissioner of Income-tax (Appeals) estimated and allowed the expenditure on printing price lists and catalogues at Rs. 10,000. As regards the expenditure on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to be caught within the ambit of section 37(3A) of the Act. Mr. Mistry relied upon the decision of the apex court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and submitted that the Finance Minister's speech explaining the reasons for introducing the Bill, etc., can be referred to for ascertaining the mischief sought to be remedied by the legislation and its object and purpose while interpreting a statute. He then referred to the meaning of the word "advertisement" given in the Encyclopaedia Britannica and meaning of the word "publicity" and "promotion" given in the Oxford English Dictionary, 2nd edition, and submitted that the words "advertisement publicity and sales promotion" denote something designed to attract public attention and to promote the sale of the product in question over the sales of its competitors. According to him, these ingredients were clearly absent in the literature printed at a cost of Rs. 8,61,010. Relying upon the decision of the Calcutta High Court in the case of Griffen Laboratories Ltd. v. CIT [2000] 244 ITR 68, the decision of the Gujarat High Court in the case of CIT v. Torrent Laboratories (P.) Ltd. [2000] 245 ITR 29, the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court, the assessee therein had not led any material to that effect, whereas in the instant case, the assessee has produced feedback material and hence the decision of the apex court in the case of Eskayef [2000] 245 ITR 116 is distinguishable on facts. Mr. Desai, learned counsel appearing on behalf of the Revenue, on the other hand, submitted that the issues raised in these references are squarely covered by the decision of the apex court in the case of Eskayef [2000] 245 ITR 116 in favour of the Revenue. Findings: At the outset, we wish to make it clear that Mr. Mistry wanted to canvas an argument that section 37(3A) was in the nature of a proviso to section 37 and that if section 37 was not attracted, then section 37(3A) will also not apply and since in this case it is accepted by the Revenue that section 37(3) which deals with the expenditure on "advertisement" does not apply, making of disallowance to the extent of Rs. 8,61,010 under section 37(3A) does not arise. We have not permitted learned counsel to raise this point as this point was not urged before the Department. Even the statement of facts forwarded by the Tribunal, at the instance of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves information as to how these products were superior in all respects. Counsel for the assessee produced before us the medical literature/information printed by the assessee. On a perusal of the same, it is seen that in respect of "halopidol" drug manufactured by the assessee, the relevant information printed by the assessee reads as under: "toxicity --As appears from the literature halopidol does not cause somatic side effects. --The product has no toxic effect on vital organic functions; kidneys, liver and bone marrow. --The blood formula does not change. --Clinical experiments have proven that halopidol can be administered during long periods of time." The medical literature further states as follows: "Cardiovascular safety --low risk of orthostatic hypotension, --because of its cardiovascular safety halopidol is the product of choice in the treatment of elderly patients." As regards Triperidol (trifluperidol) tablets/injections manufactured by the assessee, it is stated in the medical literature as follows: "controls paranoid symptoms rapidly --Especially effective in paranoid schizopherenia. --Highly effective in a wide range of both acute and chroni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(3A), in our opinion, would mutatis mutandis apply to the expenditure incurred by the assessee on printing and supplying medical literature to the doctors with or without samples. Accordingly, we hold that the expenditure incurred by the assessee falls within the scope and ambit of section 37(3A) of the Act and no weightage can be given to the contrary decisions of various High Courts relied upon by the assessee. The next contention of the assessee [question 2(b)] was that even assuming the expenditure under the head "Sales literature and miscellaneous promotional aids" constituted advertisement, publicity and sales promotion, then the expenditure to the extent covered by section 37(3B)(vii) would be an exception to section 37(3A). In other words, the submission was that the expenditure on medical literature being in the nature of publication and distribution of journals, catalogues or price lists falling within the excluded category specified under section 37(3B)(vii), the said expenditure would be an exception to section 37(3A) of the Act. This contention of the assessee is also without any merit because firstly, the assessee neither in its return nor at any stage of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Eskayef [2000] 245 ITR 116. It was, however, contended on behalf of the assessee that the Supreme Court has itself in the above case clearly envisaged that where samples are given to doctors and feedback is requested from them on the efficacy or side effects, etc., of any drug, then such expenditure would not fall within the disallowing provisions. It was submitted that, in the instant case feedback was sought for and in fact feedback regarding the efficacy or side effects of their drug was received from the medical practitioners and hence the assessee cannot be denied relief on the basis of the decision of the apex court in the case of Eskayef [2000] 245 ITR 116. There is no merit in this contention because, firstly it was not the case of the assessee at the time of assessment proceedings that the samples were given to the doctors with a request to give feedback regarding the efficacy or side effects, etc. of their drugs. Secondly, the assessment order for the assessment year 1979-80 was passed by the Assessing Officer on July 31, 1982, and the alleged letter of the assessee seeking feedback from the doctors regarding the efficacy of their drugs is dated August 18, 1983, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words "advertisement, publicity and sales promotion" in the context of the physicians samples and hence referring to the external aids like the Finance Minister's Budget speech, in the instant case does not arise at all. I.T.R. No. 323 of 1988--CIT v. German Remedies Ltd. In this case, Mr. Mistry while adopting his arguments, had made an additional submission. He stated that the Tribunal on perusal of the pampahlets, booklets brought out by the assessee has rightly given a finding of fact to the effect that these expenses were in the nature of scientific information and that these expenses cannot be said to be expenses in the nature of advertisement, publicity and sales promotion, under section 37(3A) of the Act. In the absence of any adverse material pointed out by the revenue, we see no reason to interfere with the finding of fact recorded by the Tribunal. In the circumstances, we answer the questions referred to us in each of the income-tax references as follows: Income-tax Reference No. 170 of 1987: Question 1: In the light of the decision of the apex court in the case of Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, the question is answered in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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