Income Tax Appellate Tribunal - Mumbai
Croydon Chemical Works (P.) Ltd. vs Inspecting Assistant Commissioner on 5 October, 1994
Equivalent citations: [1994]51ITD659(MUM)
ORDER
K.C. Singhal, Judicial Member
1. The only question which arises for consideration in this appeal is whether any disallowance can be made under Section 37(3A) of the Income-tax Act, 1961 in respect of the expenditure on advertisement.
2. This is a recalled matter. The appeal was originally decided on 18th December, 1992. The assessee had raised two contentions in respect of disallowance on expenditure on Physician information Pamphlets and distribution of samples etc., namely (i) that the expenditure itself was not an expenditure on advertisement, publicity or sales promotion; (if) no disallowance could be made legally under Section 37(3A). The Tribunal decided the first contention of the assessee but the other contention of the assessee left undecided. On the Misc. Application filed by the assessee, the Tribunal has recalled the matter to consider the alternative contention of the assessee vide its order dated 20th July, 1993.
3. The parties have been heard on this issue. The contention of the appellant is that no disallowance can be made under Sub-section (3A) of Section 37 in respect of expenditure on advertisement, inasmuch as, Sub-section (3A) is non obstante clause with reference to Section 37(1) only and not with reference to Section 37(3). According to the assessee, the expenditure on advertisement is allowable under Section 37(3) and therefore Sub-section (3A) has no overriding effect over Sub-section (3A). In support of his contention the learned counsel for the assessee has relied upon the decision of the Tribunal in the case of Bajaj Electricals Ltd. [IT Appeal Nos. 6254 and 6742 (Bom.) of 1987 dated 21-1-1992] a copy of which has been produced before us for our consideration. At this stage of hearing it was pointed out by the Bench to the learned counsel for the assessee that the contrary opinion has also been expressed by the Bombay Bench of the Tribunal in the case of Teksons (P.) Ltd. (IT Appeal No. 2331 (Bom.) of 1989, dated 17-6-1994] to which one of was a party. Faced with this situation, he requested the Bench to pass a speaking order after considering both the decisions of the Tribunal. On the other hand, the learned Departmental Representative relied upon the order of Commissioner of Income-tax (Appeals).
4. We have gone through the decisions of the Tribunal in the case of Bajaj Electricals Ltd. [supra). The same contention which has been taken before us, had been raised by the counsel for the assessee in that case. The Tribunal in that case has simply accepted the contention of the assessee's counsel and corroborate the same and it has also been mentioned therein that Sub-sections (3A) to (3D) had been omitted by the Legislature with effect from 1 4-1986. The relevant extract of the decision has reproduced as under :
We have carefully considered the rival submissions of the parties, as well as the provisions of Section 37 with particular reference to the expenditure incurred on advertisement, which has been amended from time to time and we find force in the stand taken on behalf of the assessee. It is pertinent to note that Sub-sections (3A) to (3D) of the Act have been omitted from 1-4-1986 by the Finance Act, 1985, which would lend support to the stand taken on behalf of the assessee that in deciding the allowance of the expenditure incurred on advertisement one has to see the provisions of Sub-section (3) of Section 37 of the Act, which is still on the statute. Viewed from this angle, we are inclined to accept the stand taken on behalf of the assessee. We would, therefore, direct the ITO to rework the disallowance, if at all, keeping in view the provisions of Sub-section (3) of Section 37 of the Act and modify the assessment accordingly.
The basis of the Tribunal's decision is that the expenditure on advertisement is allowable under Sub-section (3) and therefore no disallowance under Section 37(3A) can be made, inasmuch as Sub-section (3A) has no overriding effect over Sub-section (3). The inference which can be drawn from the decision of the Tribunal is that the expenditure on advertisement is not allowable under Section 37(1) but is liable under Section 37(3).
5. The same issue came up before the Tribunal in the Teksons (P.) Ltd.'s case (supra). The contention of the assessee was seriously challenged by the revenue in that case. It was argued on behalf of the revenue that the expenditure on advertisement is allowable under Section 37(1) and not under Section 37(3). According to the revenue, Section 37(3) only restricted the allowance of expenditure which was allowable under Section 37(1). After taking into consideration, the Tribunal held in that case that the expenditure on advertisement is allowable under Section 37(1) and Sub-section (3) thereof only restricts the said allowance.
6. Both the decisions of the Tribunal have been considered. After giving our deep thought to the issue involved, with all due respect, we prefer the view taken by the Tribunal in the case of Teksons (P.) Ltd. The provisions of Section 37(3) is also non obstante clause with reference to Section 37(1) which itself shows that the expenditure on advertisement is allowable under Section 37(1). The income from business or profession is to be computed under Section 28 in accordance with the provisions contained in Sections 30 to 43(B). Sections 30 to 36 provide for certain allowances with reference to specific expenditure mentioned in those sections. Section 37(1) is a residuary section which allows all other expenditures which are of revenue in nature. The expenditure on advertisement is allowable under Section 37(1) since it is not covered by any of the earlier Sections, i.e., 30 to 36. However, the allowance under Section 37(1) is further subject to the restrictions placed by Sub-sections 2 to 5. We are concerned only with Sub-sections 3,3A & 3B as for as this appeal is concerned. The words "shall be allowed only to the extent and subject to such conditions, if any as prescribed" occurring in Sub-section (3) are important. The words "notwithstanding anything contained in Sub-section(1)", occurring in the beginning of Sub-section (3) clearly show that the expenditure mentioned in Sub-section (3) are allowable under Sub-section(1). Otherwise, there was no necessity of making this provision as non obstante clause. Therefore, the only interpretation which may be made, to our opinion, is that the expenditure which is allowable under Section 37(1) shall be allowed to the extent and subject to such conditions as laid down in the rules. Hence, the interpretation to be forwarded by the learned counsel for the assessee that the expenditure on advertisement is allowable only under Sub-section (3) cannot be accepted. We, therefore, are in complete agreement with the interpretation of the Tribunal in the case of Teksons (P.) Ltd. (supra). The interpretation which lead to absurdity and defeat the object of the legislation cannot be accepted. The intention of the Parliament was to curtail the lavish and wasteful expenditure by trade and industry, particularly on travelling, advertisement, etc., in enacting Sub-sections (3A) to (3D). This is clear from the relevant speech of the Finance Minister dated 28th February, 1983. The relevant portion which is reproduced as under :
Hon'ble Members must be aware of lavish and wasteful expenditure by trade and industry, particularly on travelling, advertisement and the like. With a view to inculcating a climate of austerity and providing a disincentive to unproductive, avoidable and ostentatious spending by trade and industry I propose to provide that 20 per cent of such expenditure will be disallowed in computing the taxable profits. The Income-tax Act provides for the disallowance of entertainment expenses beyond a ceiling and for total disallowance of expenses on maintenance of guest houses. I propose to define the terms entertainment expenditure' and 'guest house' to remove doubts about the correct import of these expressions. The revenue from these measures in a full year will be Rs. 50 crores and in 1983-84 Rs. 40 crores. The effect of these measures combined with the increase in depreciation allowance, will be to provide a marked preferential tax treatment of investment as against unproductive expenditure.
Sub-section (3) of Section 37 was already on the statute. The Legislature did not use the word "Sub-section 3" while enacting the non obstante clause as it knew that this expenditure is allowable under Sub-section(1). The intention of the Legislature was clearly to disallow the certain portion of the expenditure on advertisement and Motor Cars. Sub-section (3B) specifically refers to the expenditure on advertisement. If the contention of the assessee is accepted then it will defeat the object of the legislation and make Sub-sections (3A) and (3B) redundant. The rule of harmonious construction provides that the interpretation should be in such a way which may not make any section redundant.
7. The observation has been made by the Tribunal in Bajaj Electricals Ltd.'s case that the Legislature has omitted the provisions of Sub-sections (3A) to (3D) in support to the interpretation made by it. With all due respect, it may be mentioned that to our opinion, Sub-section (3B) was not omitted as being superfluous because Sub-section (3B) not only refers to the expenditure on advertisement, publicity but also refers to expenditure of running and maintenance of Motor Cars which is not the subject-matter mentioned in Sub-section (3). Had these Sub-sections being superfluous with reference to subject-matter mentioned in Sub-section (3) the legisla-tural would not have omitted all the Sub-sections in entirety. There was no need to omit the provisions of Sub-section (3B) with reference to expenditure on Motor Cars. There may be various other reasons with the Legislature to omit these provisions. But the omission of these subsections do not, to our opinion, lead to the inference that these subsections were omitted being not required on the statute.
8. In view of the above discussions, we prefer the view taken by the Tribunal in Teksons (P.) Ltd.'s case (supra) for the reasons mentioned in the preceding paragraphs. The contention of the assessee therefore cannot be accepted.
Hence, the appeal of the assessee has to be dismissed as far as the recalled matter is concerned.