TMI Blog2003 (1) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... Judge(s) : S. H. KAPADIA., J. P. DEVADHAR. JUDGMENT The judgment of the court was delivered by J. P. DEVADHAR J.-Since the issues effectively required to be answered in these two references are common, both these references are heard together and disposed of by this common judgment. The questions referred by the Income-tax Appellate Tribunal ("the I. T. A. T."), in these two references at the instance of the respective parties, under section 256(l) of the Income-tax Act, 1961, read as follows : I. T. R. No. 624 of 1987 (Filmyug Pvt. Ltd. v. CIT) : Question No. 1 (At the instance of the assessee) : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of sub-section (3D) of section 37 of the Income-tax Act, 1961, were not applicable in respect of the expenditure on publicity for sales promotion incurred by the assessee in the assessment years 1979-80 and 1980-81 ?" Question No. 2. (At the instance of the Revenue) "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for computing the disallowance under section 40(c) of the Income-tax Act, 1961, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther words, the Tribunal held that even though the assessee (Filmyug) began manufacturing a new picture in the relevant previous year, exemption under section 37(3D) will not be available to the assessee as the assessee undertaking was not set up in the relevant previous year. In the case of Uttam Chitra, another Bench of the Income-tax Appellate Tribunal held that each picture is a new product and exemption under section 37(3D) is available to each picture, even though the assessee undertaking (Uttam Chitra) had been in existence for several years in the past and had produced several pictures in the past. Although there are divergent views of the Tribunal in these two references, since the basic facts in both the cases are similar, for answering questions Nos. 1 and 4 above, we have taken the facts relating to question No. 1 in the case of Filmyug Pvt. Ltd. (I. T. R. No. 624 of 1987) for the sake of convenience, and the decision in this case will apply to question No. 4 raised in Income-tax Reference No. 404 of 1987 as well. The assessee, Filmyug Private Limited, is a private limited company. The assessment years relevant for the purpose herein are assessment years 1979-80 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles in the prior years, the provisions of section 37(3D) would not apply. According to the Tribunal the word "begins" in section 37(3D) indicates that only such undertakings which begin to manufacture or produce articles in the relevant previous year are covered under section 37(3D). The Tribunal held that in the present case the assessee was set up several years back and had produced pictures for several years in the past and had not begun to manufacture pictures in the relevant previous year herein, and hence, the provision of section 37(3D) is not applicable. On a reference application filed by the assessee, under section 256(1) of the Income-tax Act, the Tribunal has referred the above question No. 1 for the opinion of this court. Mr. M. M. Desai, learned counsel on behalf of the assessee, relying upon the judgment of the Andhra Pradesh High Court in the case of CIT v. Hyderabad Bottling Co. P. Ltd. [2000] 243 ITR 476 submitted that the benefit of section 37(3D) is available to every new product even if the industrial undertaking manufacturing the said new product has been functioning for several years. He submitted that for marketing every new picture advertisements an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of a part of expenditure on advertisement, publicity and sales promotion. -In order to place a curb on extravagant and socially wasteful expenditure on advertisement, publicity and sales promotion at the cost of the Exchequer, it is proposed to make a provision for the disallowance of a part of such expenditure in the computation of taxable profits. The main features of the proposed provision are indicated hereunder : (a) The provision will apply only in relation to expenditure on advertisement, publicity and sales promotion in India. (b) Although the provision will apply to all categories of taxpayers carrying on any business or profession, no disallowance will be made in cases where the aggregate amount of such expenditure does not exceed Rs. 20,000. (c) Where a taxpayer has set up an industrial undertaking for the manufacture or production of any articles, no disallowance will be made under this provision in respect of the expenditure incurred by the taxpayer for the purposes of the business of such undertaking for a period of three accounting years, namely, the accounting year in which such undertaking begins to manufacture or produce articles and the two accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been manufacturing cool drink of brand "A", and if the said undertaking begins to manufacture cool drink of brand "B" on April 1, 1979, whether exemption under section 37(3D) in respect of brand "B" would be available to that undertaking ? One Bench of the Tribunal, in the case of Filmyug Pvt. Ltd. held that the benefit under section 37(3D) would not be available and another Bench of the Tribunal in the case of Uttam Chitra held that the benefit of section 37(3D) would be available. In our opinion, the setting up of an industrial undertaking in the year in which it begins to manufacture an article is not at all contemplated under section 37(3D) of the Income-tax Act. The only requirement under the section is that the industrial undertaking should be one which is set up for manufacturing or producing articles. There is no warrant to construe the words "set up an industrial undertaking" in conjunction with the words "in the previous year in which such undertaking begins to manufacture or produce such articles" occurring in section 37(3D) of the Act and hold that section 37(3D) applies only to such undertakings which are set up in the previous year in which the production of that ..... 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