TMI Blog1995 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... payments to the managing director of the assessee-company, though an employee, section 40A(5) could not be applied but only section 40(c) could be applied ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in excluding the expenditure on free samples supplied to the doctors in working out the disallowance under section 37(3A) of the Income-tax Act, 1961? " Question No. 1 : The assessee is a private limited company. The assessment years in respect of the issue under reference are 1978-79, 1979-80 and 1980-81. The reference case arises out of I. T. A. Nos. 1563, 1575 And 1564/(Hyd) of 1982 on the file of the Income-tax Appellate Tribunal. For the assessment year 1978-79, the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1979-80, the assessee distributed samples produced by it worth Rs. 1,59,996 among various doctors with a view to afford facilities of testing the genuineness of the drugs. The Income-tax Officer held that the value of the samples are to be treated as part of advertisement expenditure incurred by the assessee under section 37(3A) of the Act, as the samples are treated as advertisement media for pushing up the sales. Similarly, for the assessment year 1980-81, free samples of medicines manufactured by the assessee-company worth of Rs. 1,68,822 were distributed among the doctors. The Income-tax Officer applied the same principle and refused to grant disallowance. Aggrieved by the order of the Income-tax Officer for the assessment years 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive. Samples are distributed to the doctors for the main purpose of sales promotion and, therefore, the value of the samples should be treated as expenditure on advertisement under section 37(3A) of the Act. He relied on the decision of the Karnataka High Court in Smith Kline and French (India) Ltd. v. CIT [1992] 193 ITR 582, wherein a similar case arose in respect of samples manufactured by a pharmaceutical company. In the said case, the assessee-company claimed the expenditure on distribution of physicians' samples as expenditure under section 37 of the Income-tax Act, 1961. While the Revenue treated this expenditure as an expenditure incurred towards advertisement, publicity or sales promotion and, conse quently, the restrictive clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Karnataka High Court decision in Smith Kline and French (India) Ltd. v. CIT [1992] 193 ITR 582 and also the judgment of the Calcutta High Court in CIT v. Bata India Ltd. [1993] 201 ITR 884 held as follows : " From the above discussion what follows is that expenditure of the nature which is essential to the running of the business---a bare minimum to carry on the trade--would not fall within the meaning of the three expressions, i.e., advertisement, publicity and sales promotion. The other expenditure, incurred under any of the three heads, would be within the mischief of the provisions of sub-section (3A) of section 37 of the Act and, therefore, will have to be scaled down." In the instant case, the assessee claimed expenditure on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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