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TMI Blog1983 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of the assessment proceedings, the assessee claimed that the expenditure of Rs. 50,000 should be, subjected to tax treatment as an allowable expenditure in computing its income. The ITO was of the view that as the advertisements in the souvenirs were published on the same day just before the elections and the assessee had no business activity in the places where the souvenirs were published, the expenditure incurred by the assessee was more in the nature of a donation rather than expenditure incurred towards publication of advertisements and disallowed the claim put forth by the assessee regarding the advertisement expenses. On appeal by the assessee contending that the advertisements published by it in the souvenirs had as much publicity value as advertisements in the ordinary trade journals and other newspapers and, therefore, the expenditure on such advertisements should be treated as an allowable one, the AAC held that the publicity element as a result of the advertisements in souvenirs was not the same as that which resulted from such publications in trade journals and dailies and that a part of the expenditure incurred should be disallowed as relating to purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and react to the same and since the souvenirs brought out by a political party at district levels would not serve this purpose, the amount expended by the assessee on such advertisements cannot be properly made the subjectmatter of allowable deduction. On the other hand, the learned counsel for the assessee, while disputing that the expenditure incurred was a disguised donation to a political party, contended that the expenses in question for the publication of the advertisements in the souvenirs were incurred with a view to expand and promote the business of the assessee and that even though no direct or immediate benefit was reaped by the assessee or the assessee was not enabled to earn more income immediately, yet, if the advertisements, even indirectly facilitated the carrying on of the business of the assessee, the expenditure incurred thereon could be justified on the basis of commercial expediency and allowable as well and the motive for the incurring of the expenditure would be really not relevant. Attention was also drawn in this connection by the learned counsel for the assessee to Circular No. 200 dated June 28,1976, for contending that in the matter of considering c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2B) in the Act is also of no avail. No doubt, in a democratic set up, political parties are essential. Subjecting to tax the income of the political parties would effectively reduce their utilisable and employable funds and this would adversely affect their capacity to finance their activities from a legitimate source of income. With a view, therefore, to exempt from income-tax, the income received or derived by political parties from investments in movable or immovable properties and also by way of voluntary contributions, s. 13A was introduced and this was subject of course to the fulfilment of certain conditions mentioned therein. Further, with a view to prevent donations being made, not on considerations of commercial expediency, but, with the object of circumventing the ban on company donations under the cloak of advertisements in souvenirs, brochures, etc., published by political parties and at the same time securing an allowance in the computation of the income, s. 37(2B) was conceived of. Contributions or donations to political parties have been consistently held to be not allowable expenditure primarily on the ground that its connection with business is rather remote and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is not impossible that on seeing an advertisement, at some time or other, the advertiser may secure a new customer, and that would enable him or it to push his or its products in the market or to have a contract with the customer with a view to facilitate the carrying on of his or its business. Indeed, it cannot be gainsaid that souvenirs are one of the recognised media of publicity. Depending upon the capacity to meet the expenditure, a businessman can advertise in more than one newspaper or magazine or in several issues of the same newspaper or magazine. We do not see how the publication of the advertisement in more than one souvenir published by the same organisation or party will not qualify for the deduction, if the expenditure in that regard had been established to have been incurred. It is only with a view to communicate and spread far and wide the business activities of a particular advertiser that normally advertisement is resorted to. It may be that most often souvenirs are handled only on the occasion of their release and thereafter not given a second look. Even so, it is quite possible that some person in a remote corner lays his hands on the souvenir and then find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on of the business, then it would be an expenditure laid out wholly and exclusively for the purpose of such business. In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, 150 (SC), the Supreme Court observed: " The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide: it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on, of the business and the assessee shall incur it in his capacity as a person carrying on the business." In the light of the aforesaid statement of the law laid down by the Supreme Court, we may consider the circumstances under which and the reason for which the advertisements were released by the assessee. For the assessment year with which we are concerned, the assessed income of the assessee from its financing business was about 66 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Board Circular No. 200 dated June 28, 1976, which, it is not disputed, would be applicable to the case of the assessee. Therein, the Board has adverted to the hardship caused to assessees as a result of disallowance of the part of the expenditure on advertisements in souvenirs and clarified that no distinction need be made regarding the expenditure on advertisements in souvenirs and other types of advertisements and that expenditure on advertisements in souvenirs may be allowed, if the conditions under rule 6B of the I.T. Rules, 1962, are fulfilled and there is evidence that the expenditure had been incurred. In this case, the authorities below were satisfied that the expenditure had been incurred by the assessee and that the conditions under rule 6B of the I.T. Rules, 1962, were also satisfied. This circular, as pointed out by the Supreme Court in Varghese v. ITO [1981] 131 ITR 597 at 612, would be binding on the Revenue in administering or executing the provisions in the Act. Thus, on a consideration of the different facets of the question, we are of the view that the Tribunal was right in its conclusion that the expenditure of Rs. 50,000 incurred by the assessee towards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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