2002 PLP 1690 (PTD)

Nemo for the Assessee. MS. S. V. MARUTHI, J.‑‑‑At the instance of the Revenue question No.2 is referred, which is as follows:‑‑‑ "(2) Whether,' on the facts and in the circumstances of the case, the expenditure of Rs.42,059 cannot be categorized either as advertisement or publicity or sales promotion expenditure and consequently whether the Income‑tax Appellate Tribunal is justified in holding that the disallowance under section 37(3‑A) of Rs.4,260 is not sustainable?" The facts in brief are as follows; The assessee is a Government company incorporated with the object of promoting industrial development in the State of Andhra Pradesh. For the assessment year 1979‑80, a total expenditure of Rs.42,059 was incurred towards ,publicizing, activity of the assessee company, according to the Income‑tax Officer. He, therefore, applied the provisions of section 37(3A), allowed Rs.40,000 and disallowed 1/10th of the total advertisement expenditure, i.e., Rs.4,206 for the assessment year 1979‑

80. On appeal, the Commissioner of Income‑tax (Appeals) held that this is not an advertisement or publicity expenditure, but represents expenditure incurred to promote the growth of industries in Andhra Pradesh. He also held that it cannot be taken to be an advertisement to the, general public, and, therefore, the provisions of section 37(3‑A) are not attracted. On further appeal by the Revenue to the Tribunal, the Tribunal on a consideration of the brochure styled as "Compendium of the A.P.S.S.I.D.C. Services" agreed with the view of the Commissioner of Income‑tax (Appeals). At the instance of the Revenue, the question set out in the earlier paragraph was referred for the opinion of this Court. It is necessary to refer to section 37(3A), as it stood at the relevant time, of the Income‑tax Act, which reads as follows: "(3‑A) Notwithstanding anything contained in subsection (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in subsection (3B) exceeds one hundred thousand rupees, twenty per cent. of such excess shall not be allowed as deduction. in computing the income chargeable under the head `Profits and gains of business of profession'." The other provisions are not relevant for the purpose of this case. A reading of the above section makes it clear that any expenditure incurred by an assessee on advertisement, publicity and sales promotion is entitled for deduction of such expenditure as prescribed in the said section. The question, therefore, is whether the amount of Rs.42,059 incurred as expenditure is to be computed in accordance with section 37(3A). In other words, whether section 37(3A) is applicable to the expenditure incurred by the assessee. The Commissioner of Income tax as well as the Tribunal found that the expenditure incurred cannot be treated to be an expenditure on publicity or advertisement, but it is meant for notifying to the entrepreneurs and small‑scale industries to participate in the industrial development of the State. In other words, the Commissioner of Income‑tax as well as the Tribunal are of the view that section 37(3A) is not applicable to the expenditure incurred and, therefore, the allowance cannot be computed m the manner prescribed under the said section. We agree with the view of the Tribunal. The Tribunal on a consideration of the brochure found that the expenditure incurred by the assessee enables the State to promote the small scale industries and enables the small‑scale industries to obtain loans and various other facilities from the Corporation. The activity in question of the assessee cannot be said to be advertisement or sales promotion or publicity. Therefore, the view expressed by the Tribunal is correct. Accordingly, we answer the question in the affirmative and against the Revenue. The question is answered accordingly. M.B.A./725/FC Reference answered.