TMI Blog1991 (10) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ,88,321 as commission paid to sales agents and advertisement agents, respectively. The above deductions were allowed to the assessee by the Assessing Officer in the assessment made by order dated January 28, 1986. The Commissioner, on examination of the record of the proceeding, was of the view that the above claims were hit by the provisions of section 37(3A) of the Act and twenty per cent. thereof should have been disallowed. He, accordingly, issued a show-cause notice asking the assesseecompany to explain as to why the assessment made should not be revised as the same was erroneous in so far as it was prejudicial to the interests of the Revenue. The assessee, in its detailed reply dated February 25, 1988, objected to the revision of assessment. It was explained that the sum of Rs. 1,57,85,876 was paid to selling agents on sale of publication. The newspaper was sold almost entirely through selling agents outside the publishing centres of Calcutta and New Delhi and through hawkers in Calcutta and Delhi. The selling agents outside Calcutta and Delhi have to make arrangement for expeditious and efficient distribution of the newspaper through hawkers. The commission is paid at a un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing twenty per cent. of the expenditure on commission paid to sales agents and commission paid to advertising agents was prima facie erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, the Assessing Officer was directed to recompute the disallowance under section 37(3A) of the Act. Being aggrieved, the assessee challenged the order of the Commissioner of Income-tax in appeal before the Tribunal. Before the Tribunal, the assessee's counsel assailed the order of the Commissioner on several grounds. It was submitted that payments made for services rendered did not fall within the mischief of section 37(3A) of the Act. Counsel reiterated all the submissions advanced before the Commissioner. The Departmental Representative, on the other hand, strongly supported the order of the Commissioner. Further, he submitted that the Assessing Officer failed to look into the details and nature of the expenditure claimed before allowing them. As there was failure to examine the case with reference to the provisions of section 37(3A), the assessment order was erroneous and prejudicial to the interests of the Revenue. He further submitted that the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure referred to in sub-section (3A) is that incurred on (i) advertisement, publicity and sales promotion ; or (ii) running and maintenance of aircraft and motor cars ; or (iii) payments made to hotels. " The object of rehabilitating the provisions in the Income-tax Act was explained by the Central Board of Direct Taxes through its Circular No. 372, dated December 8, 1983. Clause 30 of the said circular runs as under " Section 37 of the Income-tax Act provides for deduction in the computation of taxable profits of any expenditure, other than expenditure of the nature described in sections 30 to 36 and section 80vv, or expenditure in the nature of capital expenditure or personal expenses of the assessee, laid out or, expended wholly and exclusively for the purposes of the business or profession carried on by the taxpayer. With view to curbing certain categories of avoidable or ostentatious expenditure by assessees carrying on business or profession, the Finance Act has made certain amendments to section 37 of the Income-tax Act. It is, therefore, evident that the provisions of sub-sections (3A) and (3B) of section 37 were initially introduced by the Finance Act, 1978, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, to be understood in its meaning in the setting in which it occurs. " Sales promotion " necessarily involves an element of advertisement and publicity. A manufacturer of a product may intend to further the popularity or sales by publishing and advertising or by several other modes, but the cost incurred to sell the product will not come within the purview of the " sales promotion". The expression " sales promotion " is preceded by the words" advertisement" and "publicity" in clause (i) of sub-section (3B) of section 37. Here, the legal maxim ejusdem generis is of aid. The maxim serves to restrict the meaning of a general word to things or matters of the same genus as the preceding particular words. In this connection, the following passage from Salmond on Jurisprudence (12th Edition), page 135, is worth quoting : "This, however, is only the application of a common sense rule of language : if a man tells his wife to go out and buy butter, milk, eggs and anything else she needs, he will not normally be understood to include in the term 'anything else she needs' a new hat or an item of furniture." This lucid illustration explains the said maxim. Thus, where the statute impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent of the business. The provision cannot be construed as restricting anything and everything connected with sale, such as transportation of goods for sale, collection of sale proceeds and so on. It is difficult to perceive how a newspaper publisher can run his business without the commission agency system. In its absence, the assessee would have been forced to replace the traditional distribution network by its own distribution system covering street distribution and house-to-house distribution. The dis-economics and the managerial complexities of such a self-managed system would have entailed by far higher cost and the proposition would have been commercially uneconomic. That is precisely the reason why no newspaper publisher did ever venture to adopt his own household system of total distribution. A prudent businessman will naturally arrange his affairs in a manner that yields the maximum profits by minimising the cost and also maintains an even flow of the working capital of the trade by instant realisation of the proceeds, the news agents having to take delivery on prepayment. This causes the process of quick return and rotation of the working capital. The assessee, here, has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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