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TMI Blog1999 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment years is common which is question No. 2 as mentioned hereinbelow. This court, therefore, is required to answer the following four questions : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the disallowance of Rs. 1,07,570 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the transport subsidy granted under the Transport Subsidy Scheme, 1971, amounting to Rs. 3,26,912 was a revenue receipt ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 87,249 was in the nature of entertainment expenditure as per Explanation 2 to section 37(2A) of the Income-tax Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 25,000 and Rs. 25,000 incurred on horse race and golf competition, respectively, sponsored by the appellant-company for publicity of its products was more for the prestigious post of the managing director than anything else and consequently disallowing the same ?" Regarding 1 : Questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of, or the participation in, any press conference, sales conference, trade convention, trade fair or exhibition." With effect from April 1, 1981, the provisions of sub-sections (3A), (3B), (3C) and (3D) were omitted in terms of the Finance (No. 2) Act, of 1980. By reason of the Finance Act (No. 11 of 1983), Explanation 2 was added to subsection (2A) of section 37 with retrospective effect from April 1, 1976, which is to the following effect : "For the removal of doubts, it is hereby declared that for the purposes of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work." Sub-sections (3A) and (3B) of section 37 as inserted by the Finance Act (No. 11 of 1983), read thus : "(3A) Notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said boxes. Mr. Prodesh Mallick, learned counsel appearing on behalf of the Revenue, on the other hand, submitted that the question framed by the Tribunal is a pure question of fact. According to learned counsel as a finding of fact had been arrived at by the Tribunal to the effect that such expenses had been made by way of advertisement the same cannot be assailed before this court. The findings of the learned Tribunal in relation to the aforementioned question are as follows : "Grounds Nos. 3 and 4 relate to disallowance of Rs. 1,07,570 being expenditure incurred on 180 silver boxes given as reward to the delegates of the dealer's conference in recognition of services rendered by them. The Assessing Officer disallowed the above amount being excess cost above Rs. 50 in respect of each item under section 37(2A) read with rule 6B of the Income-tax Rules. Before the Commissioner of Income-tax (Appeals) it was submitted on behalf of the appellant-company that the silver boxes given to the delegates were not in the nature of presentation of articles. They were given to the delegates in recognition of the services rendered by them in the appellant's sales. It was also stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act as per qualifications made under rule 6B of the Income-tax Rules. In view of the above, the appeal on this point is rejected." The question which, thus, arises for consideration of this court is as to whether the Tribunal was justified on the admitted facts in coming to the conclusion as to whether presentation of 180 silver boxes to the delegates who attended the dealers' conference in Calcutta would be an expenditure on advertisement in terms of section 37(2B) of the Act read with rule 6B of the aforementioned rules. The question raised herein necessarily gives rise to another question as to what is an advertisement'. 238 In Black's Law Dictionary, sixth edition, 1992, the word "advertise" has been stated, inter alia, to mean to give notice of, make known, publish or to call a matter to the public attention by any means whatsoever. The word "advertisement" has been stated to mean a notice given in a manner designed to attract public attention. In L. B. Curzon Dictionary of Law, fourth edition 1993, "advertisement" has been stated to mean public announcement or notice. In Mozley and Whiteley's Law Dictionary, eleventh edition, 1993, the word "advertisement" was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that rule 6B of the Income-tax Rules, 1962, applies only in the case of presentation of articles by way of advertisement. Thus rule 6B of the Income-tax Rules has no application in a case of this nature. In CIT v. Aditya Mills Ltd. [1994] 209 ITR 933 (Raj), a Division Bench consisting of K. C. Agrawal C.J., and V. K. Singhal J., was inter alia, considering a question as regards expenditure on account of celebration of the 10th anniversary of the company and it was held that in view of the fact that the Tribunal did not find that the expenditure had not been connected with the business, rule 6B has no application. In CIT v. Tirrihannah Co. Ltd. [1992] 195 ITR 393 (Cal), it was held that distribution of tea to the shareholders and directors without charging any price would come within the purview of business expenditure. In Karjan Co-operative Cotton Sales Ginning and Pressing Society v. CIT [1993] 199 ITR 17, S. B. Majumdar J. (as his Lordship then was), speaking for the Full Bench of the Gujarat High Court, while considering a question as to whether distribution of presents to the shareholders on celebration of its silver jubilee by the assessee is allowable business ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of law vis-a-vis the admitted fact cannot be said to be a pure question of fact. In Gemini Pictures Circuit P. Ltd. v. CIT [1981] 130 ITR 686 (Mad), Venugopal J., speaking for a Division Bench, held that whether a particular property is an "agricultural land or not" is not a pure question of fact and the High Court is not precluded from considering the correctness of the findings of the Tribunal in the light of the tests which have been laid down for determining whether a particular property comes within the ambit of agricultural land. The learned judges further held that a wrong conclusion drawn on an admitted fact is not binding on the High Court and in such an event, the High Court can examine the correctness of such conclusion and interfere with the finding of the Tribunal if it is shown that the criteria adopted by the Tribunal for determining the character of the land was erroneous. In CED v. Mahant Umesh Narain Puri [1982] 135 ITR 139, the apex court observed: "It is true that in the absence of a specific question raised with regard to the correctness of any finding of fact, the High Court in a reference is not to interfere with the finding of fact by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1983-84 and 1985-86 and question No. 1 for 1986-87 : Although the question raised appears to be covered by three Division Bench decisions of this court, viz., Jeewanlal [1929] Ltd. v. CIT [1983] 142 ITR 448, Merinoply and Chemicals Ltd. v. CIT [1994] 209 ITR 508 as also Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518, Mr. Poddar appearing on behalf of the applicant submitted that the said decisions require a reconsideration in view of the decisions in CIT v. P. J. Chemicals Ltd.[1994] 210 ITR 830 (SC),CIT v. Orissa Industries Ltd. [1992] 198 ITR 251 (Orissa), CIT v. Assam Asbestos Ltd. [1995] 215 ITR 847 (Gauhati) and CIT v. Anand and Co. [1998] 233 ITR 18 (Cal). Learned counsel for the parties, however, have also referred to various other decisions on the aforementioned question. However, it may be recorded that the principle of law which is applicable for consideration as to whether a subsidy granted by the Government would be a capital receipt or a revenue receipt would depend upon the nature thereof in so far as a subsidy granted for development purpose would be a capital receipt ; whereas that granted by way of reimbursement of the tax paid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced on behalf of the assessee that the refund of sales tax on purchase of machinery must be treated as capital, the apex court observed: "This argument, though attractive at first blush, does not bear close scrutiny. This argument overlooks the basic principle laid down in the cases discussed above. It is not the source from which the amount is paid to the assessee, which is determinative of the question whether the subsidy payments are of revenue or capital nature." In the aforementioned backdrop, the relevant provisions of the Transport Subsidy Scheme, 1971, may be considered. The said scheme came into force in terms of a notification dated July 23, 1971, issued by the Government of India for grant of subsidy on the transport of raw materials and finished goods to and from certain selected areas with a view to promoting growth of industries there. The said scheme came into force on July 15, 1971. The short title of the scheme as laid down in clause 1 thereof is the Transport Subsidy Scheme, 1971. Clause 2 provides for commencement and duration, which reads thus : "It comes into effect from July 15, 1971, for selected areas (A) with effect from September 24, 1973, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 50 per cent. of the transport costs of the additional raw materials required and finished goods produced as a result of the substantial expansion or diversification." Although the aforementioned scheme was for promoting growth of industries which is the prime concern for grant of subsidy that by itself is not conclusive. A document, as is well known, must be construed upon reading the same in its entirety. The object in framing a subsidy scheme cannot, in the opinion of this court, be deciphered only from the preamble thereof. In Kesoram Industries' case [1991] 191 ITR 518 (Cal), the meaning of the word "subsidy" had been considered in great detail which is to the following effect : "Webster's New World Dictionary, 1962 : 'a grant of money, specifically (a)... (b) a government grant to a private enterprise considered of benefit to the public.' Shorter Oxford English Dictionary : 'Help, aid, assistance... Financial aid furnished by a State or a public corporation in furtherance of an undertaking or the upkeep of a thing...' Chambers' Twentieth Century Dictionary, revised edition : 'assistance, aid in money... a grant of public money in aid of some enterprise, industry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure on account of transport. The said subsidy had been granted to supplement the trading receipts artificially so that they may compete with the manufacturers of the same products having their manufacturing units at places which are not in a backward area. In Jeewanlal's case [1983] 142 ITR 448 (Cal), Sabyasachi Mukharji J. (as the learned Chief Justice then was) while considering the grant of cash assistance for encouraging exports referring to a large number of decisions held : "If on an examination of the nature of the receipts of the amounts it is found that these amounts were supplemental trading receipts or were connected with the business, even though they did not arise actually from any positive operation of the traders, then, in our opinion, it should legitimately be considered to be business receipts. In this case the Government announced cash assistance for encouraging exports; but it was only the exporters, who did, in fact, export, got the assistance. It was by the exportation or making favourable exports that the assessee received those amounts. This, in our opinion, is the true nature of the assistance. If that is the position then it is incidental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the decisions cited by Mr. Poddar. In CIT v. Orissa Industries Ltd. [1992] 198 ITR 251 (Orissa) which has been affirmed by the apex court in P. J. Chemicals Ltd.'s case [1994] 210 ITR 830, the Division Bench of the Orissa High Court was considering a subsidy which was granted on fixed assets. In that case, there was no restriction on the utilisation of the amount granted as subsidy. It was not paid to meet the cost of assets of the assessee. It was granted for setting up industrial units in a backward area. It was, in this situation, held that clause (1) of section 43 of the Income-tax Act has no application. The said decision cannot be said to have any application in the facts and circumstances of this case. In CIT v. Assam Asbestos Ltd. [1995] 215 ITR 847 (Gauhati), although the Division Bench of the Assam High Court was considering the self-same scheme, the main question which was canvassed was as to whether the finding of the Tribunal to the effect that the subsidy is a generous act of the State, or rather a grant or gift to the assessee for the sole purpose of assisting the assessee for the growth of industries and, therefore, cannot be considered as a trading or reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replantation subsidy had been granted which was considered to be not a revenue receipt. In Sadichha Chitra v. CIT [1991] 189 ITR 774 (Bom), the law has been laid down in the following manner: "We are of the view that the answer to the question whether the receipt of a particular subsidy amounts to a capital receipt or a revenue receipt would depend upon the nature and content of the subsidy, the scheme, its objective and the purpose for which the subsidy is granted. Having regard to the nature, scope and object of the subsidy in the instant case, we are of the view that the financial assistance of Rs. 2,10,085 received by the assessee from the Government of Maharashtra did not constitute a revenue receipt in the instant case." There cannot be any quarrel with the proposition of law laid down in the said decision. In CIT v. Chitra Kalpa [1989] 177 ITR 540 (AP), the fact was that the State of Andhra Pradesh granted a subsidy for encouraging the film industries wherein the films were produced in the studios located in the State. In that situation and upon taking into consideration the essential features of the scheme it was held : "They at once indicate that the main objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with the dealer's conference organised at Kathmandu in Nepal. The amount was incurred for staying of the delegates in hotels. It is, therefore, an allowable deduction under section 37(1) of the Act. The Commissioner of Income-tax (Appeals) considered the facts of the case and the arguments advanced on behalf of the appellant. He has taken a view that the hotel bills paid in connection with the dealers' conference and also the expenditure incurred for providing lodging to the visitors were to be treated as entertainment expenditure as per Explanation 2 to section 37(2A) of the Act. However, he has taken a view that a part of the expenditure relating to the hiring of conference hall is an allowable deduction which he estimated at Rs. 5,000. He accordingly reduced the disallowance by Rs. 5,000. While objecting to the order of the Commissioner of Income-tax (Appeals) learned counsel on behalf of the appellant reiterated the facts of the case and the nature of expenditure claimed stating that the entire expenditure should have been allowed under section 37(1) of the Income-tax Act, 1961. On the other hand, the learned Departmental Representative has supported the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2B) as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work." The wordings of the said section are absolutely clear. The question, however, before the Assessing Officer, the appellate authority as also before the Tribunal was as to whether expenses incurred under all the four heads amounting to Rs. 1,22,976 were allowable as business expenditure ; where for the assessing authority allowed a sum of Rs. 33,000 and odd towards payments to clubs only. The appellate authority allowed a sum of Rs. 5,000 towards the rental charges of the conference hall at Kathmandu where the conference had been held. The Tribunal, as indicated hereinbefore, although noticed that merely a sum of Rs. 39,824 was incurred in connection with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to be entertainment. The said decision, therefore, runs counter to the submission of Mr. Mallick. In Phool Chand Gajanand v. CIT [1989] 177 ITR 265, a Full Bench of the Allahabad High Court was considering the provision of sub-section (2A) and (2B) of section 37 in relation to the assessment year 1974-75. Explanation 2 appended to section 37 was inserted in 1983 with effect from April 1, 1976. Sub-section (2B) of section 37 as inserted by the Finance Act of 1970 reads thus : "Notwithstanding anything contained in this section, no allowance shall be made in respect of expenditure in the nature of entertainment expenditure incurred within India by any assessee after the 28th day of February, 1970." In that case there was no dispute that the expenditure incurred was by way of entertainment. In this case, such a contention has been raised clearly in relation to three items and in relation to a part of one of the items. In that case the expenditure was incurred for the messing of its customers and, thus, was held to be expenditure in the nature of entertainment. The said decision, therefore, has also no application in the instant case. In Phool Chand Gajanand v. CIT [1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the company's business. However, the decision was taken apparently for the social movements of the high profile directors. Therefore, in my view, the expenditure of Rs. 60,000 is not to be allowed as a legitimate expenditure wholly and exclusively for the company's business." It is now a well settled principle of law that any expenses incurred by way of advertisement must be considered from the point of view of the assessee and not from any other angle. In CIT v. Delhi Cloth and General Mills Co. Ltd. [1978] 115 ITR 659 (Delhi), expenditure incurred by the assessee in organising football and hockey tournaments was held to be allowable deduction under section 10(2)(xv) of the Act. The same principle was reiterated in Delhi Cloth and General Mills Co. Ltd. v. CIT [1992] 198 ITR 500 (Delhi) and Addl. CIT v. Delhi Cloth and General Mills Co. Ltd. [1983] 144 ITR 280 (Delhi) (Appendix I). In CIT v. Aluminium Industries Ltd. [1995] 214 ITR 541, a Division Bench of the Kerala High Court has clearly held "It is now an accepted proposition that the expenditure laid out wholly or exclusively for the purpose of business would include the cost of advertisement." It has been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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