Calcutta High Court
Commissioner Of Income-Tax vs Santosh Agencies on 20 December, 1993
Equivalent citations: [1994]210ITR78(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference made at the instance of the Revenue, the following question has been referred by the Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case and on a correct interpretation of Sections 37(3A) and 37(3B) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the expenses incurred on special discount and foreign tour expenses are not hit by the said Sections 37(3A) and 37(3B) of the said Act and thereby directing to delete the consequential addition made in the assessment ?"
2. The assessee is engaged in carrying on the business of dealers of Beltek T. Vs. This reference relates to the income-tax assessment of the assessee for the assessment year 1984-85. In the course of the assessment proceedings, the Assessing Officer found that the assessee incurred an expenditure of Rs. 2,16,025 debited under the head "Special discount" and another sum of Rs. 1,65,236 debited under the head "Foreign tour expenses". The Assessing Officer noticed that the assessee in terms of its Circular No. 26 of 1983 dated January 10, 1983, introduced a new sales promotion scheme under which special discount was allowed to its dealers for black and white T. V. sets lifted by them during the period January 1, 1983, to March 31, 1983, in the following manner :
Quantity of T. V. sets Special discount allowed Rs.
11 to 20 sets 50 per set.
21 to 40 sets 75 per set.
41 sets and above 100 per set.
3. The aforesaid scheme was extended by the assessee for another three months, namely, April 1, 1983, to June 30, 1983, in terms of its circular No. 27 of 1983 dated April 1, 1983. The special discount so allowed during the relevant previous year to its dealers came to Rs. 2,16,025.
4. The Assessing Officer also found that on June 29, 1983, the assessee issued another circular No. 28 of 1983 offering to its dealers introducing another scheme under which the assessee was to meet the travel expenses of its dealers for a pleasure trip to Kathmandu, Bangkok, Hongkong and Singapore in the following manner :
No. of T. V. sets Travel to
1. 20 sets One person Calcutta/Kathmandu/Calcutta
2.
30 sets
Two persons -do-
3.
60 sets
One person Calcutta/Bangkok/Hongkong/Singapore/Calcutta
4.
100 sets
Two persons -do-
5. Under the aforesaid scheme, the assessee incurred an expenditure of Rs. 1,65,236 which was debited under the head "Foreign tour expenses". The Assessing Officer regarded the aforesaid two sums as sales promotion expenses within the meaning of Section 37(3A) read with Section 37(3B) of the Income-tax Act, 1961, and disallowed 20 per cent. thereof in so far as the aggregate expenditure falling under the said two sections exceeded Rs. 1,00,000. This action of the Assessing Officer was confirmed on appeal by the Commissioner of Income-tax (Appeals). On further appeal by the assessee to the Income-tax Appellate Tribunal, it was held by the Tribunal that none of these two items of expenses could be regarded as sales promotion expenses. The Tribunal noted that the special discount was allowed by the assessee on the sale of T. Vs. to its sub-dealers depending on the target of specified number of T. V. sets purchased by the sub-dealers during the relevant period as notified in the circulars. Similarly, the expenses on foreign tours were incurred by the assessee in connection with the foreign tour of the dealers in terms of the aforesaid circular dated June 29, 1983. The Tribunal noted that the assessee met the foreign tour expenses of the sub-dealers instead of granting them cash discount. The foreign tour was conducted in accordance with the said circular. The Tribunal felt that the meeting of foreign tour expenses by the assessee was nothing but a case of granting special discount to its sub-dealers. The Tribunal, therefore, held that neither the special discount in the aggregate sum of Rs. 2,16,325 nor the foreign tour expenses of Rs. 1,65,236 could be treated as sales promotion expenses within the meaning of Section 37(3A) read with Section 37(3B) of the said Act. The Tribunal, therefore, deleted the consequential addition made on this account by the Assessing Officer in completing the assessment for the said year. Thereafter, at the instance of the Revenue, the aforesaid question has been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961.
6. The expression "sales promotion" used in Section 37(3B) of the Income-tax Act, 1961, though one of wide amplitude, is not defined. This court in CIT v. The Statesman Ltd. [1992] 198 ITR 582 held that, in the absence of any definition of the expression "sales promotion" in the Income-tax Act, its meaning must be understood in the setting in which it occurs. "Sales promotion" necessarily involves an element of advertisement and publicity. A manufacturer of a product may intend to further the popularity or sales by publicising or advertising or by several other modes and that would be sales promotion, but the cost incurred to merely sell the product will not come within the purview of "sales promotion". The expression "sales promotion" is preceded by the words "advertisement" and "publicity" in Clause (i) of Sub-section (3B) of Section 37. Here, the legal maxim of ejusdem generis is of aid. The maxim seeks to restrict the meaning of a general word to things or matters of the same genus as the preceding particular words. Thus, where the statute imposes restriction on advertisement, publicity and sales promotion, the expression "sales promotion" cannot include the selling expenses incurred in the ordinary course of the business. It only restricts such expenses as are of like nature as advertisement and publicity. This restriction cannot, therefore, operate on the selling cost which is the ordinary and normal incident of the business.
7. Applying the aforesaid tests laid down by this court, we find that in this case both the special discount allowed to the dealers as well as the foreign tour expenses of the dealers as incurred by the assessee are nothing but selling expenses incurred in the ordinary course of business.
8.
Clearly, here these incentives given to the assessee's selling agents cannot be said to be sales promotion in the context of Section 37(3B) which refers to the sales promotion. Sales promotion connotes activity akin to advertisement and publicity. Rewarding the selling agents with special discount or pleasure trips on the basis of performance cannot be said to be sales promotion pertaining to the same genus as advertisement and publicity. By these rewards given to the selling agents the assessee cannot be said to have taken a drive to draw the attention of the consumers. The entire effect of the expenditure is consumer-neutral. It may have an indirect effect on the market in the sense this will instil in the selling agents a greater fervour in pushing up sales. But, we cannot distinguish any activity as sales promotion by the mere effect of the activity on the saleability. It is only such expenditure in the nature of advertisement and publicity which creates a stir amongst the consumers directly by means of exhibitions, shows and other methods of popularising the assessee's commodity, that can be said to be activity similar to or of like nature as advertisement and publicity. By giving rewards to the selling agents to motivate them for performance is not anything that publicises the assessee's commodity.
9. In this view of the matter, we find ourselves in agreement with the Tribunal that neither the special discount nor the foreign tour expenses of the dealers are covered by the expression "sales promotion expenditure" as appearing in Section 37(3A) read with Section 37(3B) of the said Act. We, therefore, answer the aforesaid question in the affirmative and in favour of the assessee.
10. There will be no order as to costs.
Nure Alam Chowdhury, J.
11. I agree.