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TMI Blog2011 (1) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... f Pepsi and since the said expenditure was benefiting to Pepsi and not to the assessee was correct?" 2. Insofar as question of law No. (i) is concerned, the assessee is the franchisee of M/s. Pepsi Food (Pvt.) Ltd. (hereinafter referred to as 'Pepsi'). Under the franchisee agreement, the assessee was manufacturing Pepsi brand of soft drinks. Pepsi had entered into a lease agreement with M/s. 20th Century Finance Corporation Ltd. for lease of visi coolers. Pepsi was paying the hire charges to the said 20th Century Finance Corporation Ltd. These coolers were installed with the various franchisees including the assessee in the areas falling within the territory allocated to the assessee. For this purpose, Pepsi claimed and received from the assessee its share of hire charges amounting to Rs. 3,45,177. This amount was, thus, paid by the assessee to Pepsi reimbursing Pepsi the lease charges which Pepsi had paid to the 20th Century Finance Corporation Ltd. The assessee had claimed the same as business expenditure under section 37 of the Income-tax Act (hereinafter referred to as 'the Act'), which was disallowed by the Assessing Officer (Assessing Officer) as well as CIT(A). The ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. The matter was taken up to the Tribunal against the aforesaid view held by the CIT(A). The Tribunal vide impugned judgment, dated 7-12-2007, held that since the assessee incurred the entire expenditure exclusively for business purposes, whole expenditure would be allowable as deduction under section 37(1) of the Act. Referring to the judgment of Supreme Court in the case of Sassoon J. Davis & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/1 Taxman 485 the Tribunal opined that by advertising the product, the trademark and trade brand of Pepsi have been benefited and that would be of no consideration to deny the assessee deduction of the expenditure incurred by it. 6. Learned counsels appearing for the appellant have submitted that the agreement entered into between the assessee and Pepsi clearly shows that it was Pepsi who was to remain owner of the trademark and an obligation was cast upon the assessee not to take any action which would prejudice or harm the trademark or Pepsi's ownership thereof in any way. It is also stated in the said agreement that the use of the trademark by the assessee enures to the benefit of Pepsi. It is also pointed out by the learned counsels that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under section 37 of the Act, if it otherwise satisfies the tests laid down by law. 7. The Court went into the legislative history of section 37 of the Act and pointed out that though in the Income-tax Bill, 1961, in the original section 37, as per the draft, the word "necessity" appeared was ultimately omitted and instead replaced by the word "ordinarily". Thus, for allowing the expenditure incurred under section 37(1) of the Act, the conditions which are to be satisfied are :- (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36 of the Act, (c) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee, (d) The expenditure must have been laid out or exclusively for the purposes or profession. 8. It was clarified by the Division Bench that the word "wholly" refers to quantum of expenditure while the word "exclusively" refers to the motive, objective and purpose of the expenditure. The Court also explained that the term "commercial expediency" is not a term of art and it means anything that serves to promote commercial expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertising and sales promotion activity for the beverage. If in the process, Pepsi or its trademark also benefited, that would not militate against the assessee as far as claiming the deduction under section 37 of the Act is concerned, once all the characteristics of the said provision stood satisfied. 10. The judgment of this Court in Dalmia Cement (P.) Ltd.'s case (supra) has been approved by the Supreme Court in the case of S.A. Builders Ltd. v. CIT [2008] 288 ITR 1/[2007] 158 Taxman 74 in the following words :- "Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. v. CIT [1995] 215 ITR 582 also does not appear to be correct. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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