TMI Blog2013 (5) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, dis-allowance of expenditure and thereby compelling the assessee to maintain such infrastructure itself will only result in wasteful expenditure which is sought to be curbed by inserting sub section (3A) and (3B) by the Finance Act, 1978. Sub section (3B) does not mention that the office for purposes of advertisement, publicity and sale promotion should be maintained by the assessee itself. On the contrary the use of the word "any office" in clause (iv) of sub section (3B) of section 37, without it being circumscribed by words like 'itself' or 'of it's own' leads to irresistible conclusion that expenditure can be made by the assessee company itself or by employing some person or agency on its behalf and in both cases, such expenditure qualifies for total exemption without any dis-allowance under clause (iii) of sub section (3A) of section 37 of the Act. In favour of assessee. - Income Tax Reference No. 44 of 1987, Income Tax Reference No. 45 of 1987 - - - Dated:- 9-5-2013 - Prakash Krishna And Manoj Kumar Gupta,JJ. For the Petitioner :- S. C., A. Kumar, A.N. Mahajan. B. Agarwal, D. Awasthi, G. Krishna, S. Chopra For the Respondent :- H. Upadhyay ORDER ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement reads as under :- "7. The Company, shall, in addition to the supply of the formula, description and know-how of its products to the Licensee be responsible for sales promotion of such products alongwith their own products and for this service of sales promotion the licensee shall pay 8% of the net sales (wholesale) price less distributors' commission, if any of products manufactured by the Licensee under this agreement." There was an amendment to the above agreement by a supplementary agreement dated 29-6-1978. Para 3 of the preamble as well as clause 2 of this supplementary agreement reads as under ;- "Whereas the Company undertook the responsibility of sales promotion of the products to be manufactured by the licensee of 8% of its sales realization towards reimbursement of the increased sales promotion expenses of the company as provided in clause 7 of the said agreement." 2. That the payment of 8% as provided in clause 7 of the original agreement dated 3-7-1971 is in respect of contribution of the Licensee towards sales promotion expenses of company on account of cost of maintenance of sales promotion offices, sales promotion staff and printing, publication and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He was of the view that for claiming exemption under section 37(3B)(iv) of the above section, it was necessary that the office, for the purposes of advertisement, publicity or sales promotion, should have been maintained by the assessee itself. According to him, therefore, the provisions of section 37(3A)(iii) were applicable to the case. He, therefore, disallowed 15% of the expenditure of Rs.23,60,574/-. 8. The assessee appealed to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) agreed with the submission of the learned counsel for the assessee that it was not necessary for the assessee itself to maintain any office so long as it continued to reimburse the expenses for such maintenance. He, however, held that in the year under appeal, the assessee's share came to only 7.4% of the total expenses incurred by the Calcutta company and, therefore, a dis-allowance of Rs.25,740/- was called for. He restricted the dis-allowance to this amount and allowed the balance. 9. In appeal, the Tribunal held that the assessee earned exemption in terms of clause (iv) of section 37(3B) of the Act. The Tribunal agreed with the findings of the Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may be restricted by the context. The word ''any' according to the dictionary meaning indicates ''all' or ''every' as well as ''some' or ''one' depending upon the context and the subject matter of the statute. 14. Thus, the word "any" has several connotation. However, its actual meaning has to be judged in the context in which it has been used and for which purpose, the entire provision has to be looked into. 15. Section 37 of the Act is the residuary section extending the allowance to items of business expenditure, not covered by the preceding sections. "Expenditure" primarily denote the idea of spending or "paying out or away"; it is something which is gone irretrievably. There would have been no difficulty in allowing the expenditure in case the assessee company would have spent the same in maintenance of office itself. However, in the instant case, the problem arises because the same is being done through the Calcutta Company. 16. Thus, the main question which arises for consideration is whether payment of 8% of the sales realization,to the Calcutta Company, to reimburse it for expenditure incurred by it on behalf of assessee in maintaining sales promotion office and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of much help to the respondent-assessee except for the wider proposition of law laid therein that for judging nature of expenditure, it is not very material whether the same has been incurred by the assessee itself or through some third party or agency, till such expenditure has been made for efficient and convenient running of the business of the assessee. 22. The expenses of advertisement were once upon a time sought to be disallowed on the ground that it improves the value of the goodwill and are of enduring nature and thus partakes the nature of capital expenditure. However, with the growth of law through the judicial process, such argument was held to be untenable. It appears that because of the said reason, sub section (3A) and (3B) were omitted by the Finance Act no.2 of 1980 w.e.f. 1-4-1981. Although slightly different provision was once again re-introduced by Finance Act, 1983 w.e.f. 1-4-1984 but again it was omitted by Finance Act, 1985 w.e.f. 1-4-1986 and since thereafter it had ceased to be on the statute book. Now there is no such prohibition relating to dis-allowance in expenses incurred on the advertisement, publicity and sales promotion except when such expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at sourcing broker Burnt-Oak Partners, said cost cutting is the reason most people outsource. "Everything else is an extra," he said, "For example, customers will expect to get innovation as part of any outsourcing deal that is about cutting costs." Maintaining an infrastructure can be an extra burden for some businesses, which outsourcing can remove. Outsourcing your business requirements to a trusted vendor can help save on the capital expenditure, time, and extra efforts of your personnel. Additionally, one is no longer committed to invest on employee training, or purchasing expensive software, or investing in latest technologies. All this add up to higher returns in the longer run. 27. In the instant case, it seems that 8% of the sale realization was agreed to be paid to the Calcutta Company at Calcutta in view of it maintaining office and infrastructure for advertising the product of the assessee company. It is a tool employed by the assessee company to have the advantage of using infrastructure maintained by Calcutta Company for advertising its own goods without taking upon itself the burden to bear the entire expenditure in case separate office in this regard is maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
