TMI Blog2013 (7) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 257 & 258 of 2013 - - - Dated:- 4-4-2013 - AKIL KURESHI AND MS. SONIA GOKANI, JJ. For the Appellant : M.R. Bhatt and Mrs. Mauna M. Bhatt. For the Respondent : None REP: Akil Kureshi These Tax Appeals arise out of common judgment of the Income Tax Appellate Tribunal, Ahmedabad [ Tribunal for short] dated 21st September 2012. We may notice questions framed in Tax Appeal No. 257 of 2013, which read as under :- [A] Whether the Appellate Tribunal has substantially erred in deleting the disallowance of advertisement expenses amounting to Rs. 35,64,277/= [being 30% of advertisement expenses] ? [B] Whether the Appellate Tribunal has substantially erred in totally overlooking the fact that marketing was not the responsibility of the assessee but of Rasna Private Limited and whether the Appellate Tribunals decision is per verse ? [C] Whether the Appellate Tribunal has substantially erred in not appreciating that by advertising Rasna Branch, an intangible asset was created, which was not even owned by the assessee and therefore, the expenses relatable thereto were not for the business purpose of the assessee and in the alternative were capital in nature ? [D] W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. Thus, for expenditure to be allowable under section 37 of the Act it must have been (a) paid wholly and exclusively for the purpose of the business or profession and (b) must not be (i) capital expenditure, or (ii) personal expense. It must also not fall within any of the exceptions carved out under sub-section (2B) of section 37. I 7. Examining the facts of the present case in the light of the above statutory provision, insofar as the assessee is concerned it has paid the entire amount towards advertisement expenses incurred wholly and exclusively for its business. From the record of the case, it is apparent that the assessee has advertised only the products manufactured by it. Besides, it is not the case of the appellant that such expenditure is capital in nature or that it is in the nature of a personal expense, nor does it fall within any of the exceptions carved out under sub-section (2B) of the Act. Thus, the expenditure in question does satisfy the requirements of section 37 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere contented and that there was no disturbance in the smooth working of the factory because of strike, stoppage of work, or rowdyism in the mill premises and the Tribunal allowed the deduction. On a reference this High Court held thus: We may note that when the Tribunal dealt with the matter and allowed this deduction to the company it found that there was sufficient evidence on the record to show that the expenditure in question was incurred by the assessee-company not for any third party ' but only for itself with a view to preserve peace in its business. The Tribunal observed: "Finally, we have also before us the board's resolution, dated March 1, 1962, and the agreement which was eventually arrived at between the concerned parties on that very date showing that the company had agreed to make the payment only to pacify the workers and to restore smooth working of its factory. It is thus very evident from all these materials that the payment in question was made not with a view to help the society nor out of any philanthrophical motives but purely from a business point of view. We find that there were two alternatives before the assessee-company, viz., one to stick to its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Division Bench, observed at page 467 of the report : " Now, the decided cases show that one has not got to take an abstract or academic view of what is proper expenditure laid out or expended wholly and exclusively for the purposes of one's business. One has got to take into consideration questions of commercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the court is whether the expenditure was a part of the process of profit-making. If the expenditure helps or assists the assessee in making or increasing the profits, then, undoubtedly, that expenditure would be expended wholly and exclusively for the purposes of business. It has been urged that the payment made by the assessee was a voluntary payment. That is perfectly true, because there was no obligation whatever upon the assessee to share the bonus with the managed company, and in sharing the bonus the assessee did an act which it was under no obligation to do. But, even a voluntary act if performed for commercial expediency would still be an expenditure falling within section 10(2)(xv) if it can be shown that it was intended for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the court is whether the expenditure was a part of the process of profit making. (2) The test for the purpose of deciding whether a particular amount can be allowed as deductible allowance under section 12(2) of the Act is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertakings in order indirectly to facilitate the carrying on of its business. If the transaction had been entered into on the ground of commercial expediency in order even indirectly to facilitate the carrying on of the business of the assessee, it would attract the provisions of section 12(2) even though the transaction might have been voluntarily entered into. (3) If the payment was made with an indirect or improper motive for some considerations aliunde the business or out of generosity, then the payment is not liable to be regarded as one covered by the provisions of section 10(2)(xv) : that the matter has to be viewed in the light of principles of commercial trading and commercial expediency and what is required is that the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess any third party has also benefited. The mere fact that on account of the expenditure incurred by the assessee wholly and exclusively for its own business, incidentally some third party is also benefited is no ground to disallow any part of such expenditure. In the case at hand, the assessee procured usage rights for brand Rasna for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessees business. Under the circumstances, merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also indirectly benefited, it cannot be said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also be be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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