2013 (2) TMI 474 - HC - Income Tax

Expenditure incurred on hired space on hoardings Whether expenditure incurred on hired space on hoardings would come under section 37(3A) read with sub-section (3B), despite the fact that rentals are allowance under section 30 of the Act ? Assessee claimed deduction of (i) expenditure incurred on hired space on hoardings, and (ii) expenditure incurred on statutory advertisement like printing of technical data sheets, printing of stationery, etc., under the general head of advertisement and publicity. Held that - If the assessee is a tenant in occupation of a premises for the business or profession, the rent paid for such premises and the cost of repairs incurred, if any, shall be allowed to be deducted. Crucial words in section 30 are use of the premises for the purpose of business or profession . By no stretch of imagination, it can be inferred that the hire charges paid for advertisement hoardings would also come within the ambit of use of the premises for the purpose of business. Section 30 has nothing to do with advertisement, publicity or sales pro-motion. Giving very plain meaning of the language in section 30, it has to be construed as dealing with the deduction of rent, rates, taxes, repairs and insurance paid for the premises used for the business or profession either as a tenant or otherwise as a tenant. It does not take within its fold expenditure incurred for advertisement or publicity. If section 30 is interpreted as also allowing deduction of the hire charges for the space for the purpose of advertisement, it would amount to supplying casus omissus. The expenditure under the head expenditure incurred on hired space does not come within the purview of publicity, advertisement or sales promotion. Section 37(3A) read with sub-section (3B) is very specific that it is only the expenditure incurred for advertisement, publicity and sales promotion which are to be given ordinary meaning. Mere hiring a on hoardings cannot be treated as expenditure for advertisement or publicity or sales promotion - In favour of the Revenue

Summary

Issues:
1. Interpretation of section 30 of the Income-tax Act, 1961 regarding deduction of expenditure for hiring space on hoardings under section 37(3A) for the assessment year 1985-86.
2. Determination of whether excise duty is a direct cost of manufacture for the assessment year 1986-87.

Analysis:

*Issue 1:*
The case involves a reference under section 256(1) of the Income-tax Act, 1961, concerning the deduction of expenditure for hiring space on hoardings under section 37(3A) for the assessment year 1985-86. The assessee, a public limited company engaged in manufacturing, claimed deduction under section 30 of the Act for rental paid for hiring space on hoardings. However, the Assessing Officer disallowed the deduction, which was upheld by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The court analyzed sections 30 and 37 of the Act, emphasizing that section 30 allows deductions for rent, repairs, and insurance for premises used for business, not for advertisement or publicity. The court strictly interpreted the tax law and emphasized that deductions should be based on clear statutory provisions. It concluded that hiring space on hoardings does not fall under advertisement, publicity, or sales promotion as specified in section 37(3A) and (3B). Therefore, the court ruled in favor of the Revenue and against the assessee, denying the deduction for hiring space on hoardings.

*Issue 2:*
The second issue pertains to whether excise duty is considered a direct cost of manufacture for the assessment year 1986-87. The court referred to a previous decision and held that excise duty is a direct cost of manufacture, even after the goods are produced and the levy is imposed. The court relied on precedent and ruled in favor of the Revenue based on the decision in a similar case involving the same assessee. The court highlighted the importance of consistency in judicial decisions and upheld the view that excise duty constitutes a direct cost of manufacture.

In conclusion, the court's judgment addressed the interpretation of statutory provisions under the Income-tax Act, 1961, regarding the deduction of expenditure for hiring space on hoardings and the classification of excise duty as a direct cost of manufacture for the respective assessment years. The court's analysis focused on strict interpretation of tax laws and adherence to clear statutory language to determine the eligibility of deductions and costs in the context of business operations.