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TMI Blog1997 (7) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... isement in the souvenir brought by the Indian National Congress was allowable as business expenditure? " The assessee, a private limited company, was engaged in the manufacture and sale of sports goods. A return of income for the assessment year 1976-77 (accounting year ending on March 31, 1976), was filed, declaring a total income at Rs. 6,45,800. The assessee subsequently revised the return showing total income at Rs. 5,56,800. Relief under section 35B of the Act in respect of certain expenses aggregating to Rs. 4,79,868, as against the earlier claim on expenses amounting to Rs. 2,12,863 was claimed. Again, during the assessment proceedings, the assessee revised its claim under section 35B on the expenses totalling Rs. 5,93,638 as under : Rs. Rs. " (i) Establishment including salary to the managing director 3,98,495 Commission to the managing director, 75 per cent. thereof relating to promotion of exports 70,709 3,41,902 (ii) Export markets development expenses 1,74,668 (iii) Printing and stationery, 50 per cent thereof relating to promotion of export 18,618 9,509 (iv) Vehicle repairs and maintenance, 15,004 50 per cent. thereof relating to promotion of export 7,502 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers of the staff. The Commissioner allowed 50 per cent. of the expenditure incurred on the payment of salary to the members of the staff but restricted the benefit of weighted deduction to 25 per cent. of the remaining expenditure pertaining to salary to the members of the management. The Tribunal, however, in the assessee's appeal increased the benefit to 60 per cent. of the expenditure in respect of salary to the members of the staff and 30 per cent. on the salary paid to the members of the management including the managing director. The assessee does not appear to be aggrieved from the proportionate expenditures having been allowed for the purposes of deduction under section 35B of the Act. The question of law has been raised by the Department only. Sh. R. P. Sawhney, learned senior counsel for the Department, has argued that expenditure for the purposes of section 35B were only those expenditures which were incurred for sales promotion or development and not merely for making sales or exports. Sh. Sawhney contends that what section 35B provided, was to allow an expenditure for the purposes of weighted deduction in order to encourage, promote or develop export markets. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al had allowed deduction on the amount representing 50 per cent. of the expenditure following a decision of the Special Bench of the Bombay Tribunal in I. T. A. No. 3255 of 1976-77 in the case of J. Hem Chand and Co. That was upheld by the High Court. The Calcutta High Court has also taken a similar view in CIT v. Tungabhadra Industries Ltd. [1992] 196 ITR 912. The assessee had claimed expenditure incurred on payment of fees to the Export Credit Guarantee Corporation and also in respect of salary expenses attributed to export business. The High Court upheld the order of the Tribunal whereby deduction had been allowed on the salary of the export department up to 75 per cent. of the claim. In a subsequent decision in Jayashree Tea and Industries Ltd. v. CIT [1993] 202 ITR 695 (Cal), the same High Court again took a similar view and held that proportionate head office expenses pertaining to export were eligible for deduction under section 35B of the Act. A reference was also made to a circular dated December 28, 1981, issued by the Central Board of Direct Taxes which had been mentioned in its judgment by the Allahabad High Court in CIT v. Novelty Trading Corporation [1984] 150 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll qualify for deduction. In Continental Device India Ltd. [1992] 198 ITR 680 (Delhi), expenditure on repairs and renewals, electricity and power, rent and printing and stationery were claimed for being considered for deduction under section 35B of the Act. The Tribunal had allowed such deduction on 75 per cent. of repairs and renewals and electricity and power. Expenditure up to 50 per cent. of rent and printing and stationery had been allowed for being considered for such deduction. It was held that weighted deduction shall be allowed on such expenditure inasmuch as a co-relation was established between the items of expenditures and the heads referred to in the various sub-clauses of clause (b) of section 35B(1) of the Act. In CIT v. Usha Sales Ltd. (No. 1) [1990] 182 ITR 452 (Delhi), expenditure incurred under the heads custom duty, repairs and reassembly, clearing and storage, etc., which had been allowed for the purposes of deduction under section 35B, were approved and it was held that no question of law arose from such deduction. The Allahabad High Court in CIT v. Lall's International [1987] 167 ITR 237, has also taken a view that the amount spent on repairs, reconstructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for extra-business considerations and amounted to a donation. The Assessing Officer looked into the substance of the transaction and rightly doubted the advertisement. Sh. B. S. Gupta, learned senior counsel for the assessee, had argued that there was no material on record to make any bifurcation or to split the payment between one for business consideration and the other for non-business consideration. The actual advertisement published in the souvenir had been looked into by the Commissioner of Income-tax and since the factum of publication stood proved, there was no justification in treating part of the expenditure as a donation. From the facts, it is apparent that the assessee did make a payment of Rs. 5,000 for the purpose of publishing an advertisement of its product in the souvenir. Since the advertisement had appeared in the souvenir, part or proportionate expenditure could not be legitimately disallowed on a presumption that the entire amount did not represent the advertisement cost. Since the advertisement in the souvenir had mentioned the goods manufactured by the assessee, it was no different from the advertisement in other publications. A question about the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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