TMI Blog2007 (6) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... elivered by P. D. Dinakaran J.— The above tax case appeal is preferred by the Revenue against the order of the Income-tax Appellate Tribunal dated November 23, 2006, made in I. T. A. No. 1750/Mds/1999 for the assessment year 1996-97, raising the substantial question of law, viz., "Whether the Tribunal was right in holding that the advertisement expenditure incurred for promoting the pickles manufactured by its sister concern, for which the assessee is the distributor and selling agent, is allowable as the assessee's business expenditure ?" under the following facts and circumstances of the case. 2. The assessment year involved in this appeal is 1996-97. The assessee is a private limited company engaged in the business of trading in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale of pickles manufactured by the sister concerns. Even though the principal manufacturer would provide basic advertisement matters, the assessee had incurred expenditure to the tune of Rs. 25,69,405 towards display and screening of advertisements during exhibition. However, the Commissioner has found that though the assessee contended that by virtue of the letter of the principal manufacturer, it was required to bear the cost of exhibition, display and screening of advertisements, the said letter dated March 31, 1995, is only a self-serving evidence and in the absence of any validly executed agreement or understanding between the assessee and its sister concerns, the expenditure incurred towards display and screening of advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 to 36 and not being 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 shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Explanation.— For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 6. A careful reading of section 37(1) of the Act makes it clear that for allowing any expenditure whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory." 8. In the instant case, it is the clear case of the assessee that it is not only acting as an agent to the products manufactured by its sister concerns, but also engaged in the business of trading in scouring powder, pickles, etc. In other words, the marketing of the products manufactured by M/s. Telkar Food Products P. Ltd., by itself, is a trade undertaken by the assessee and the expenses in question claimed by the assessee are the expenses incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in his capacity as businessman or in his personal capacity. 11. In the instant case, we do not find any difficulty to hold that both the tests referred to above were satisfied by the assessee, in that, the assessee-company has incurred expenses to earn profits in its business of marketing and it had incurred expenses not in its personal capacity as an agent to the products manufactured by its sister concerns, but in its capacity as a businessman in marketing the products by itself. 12. The above well-settled legal position are being recapitulated by several decisions, as stated hereunder : Justice Shah, as he then was, speaking for the Full Bench of the apex court in Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "necessarily", the apex court has held that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business and such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the old Act, even though there was no compelling necessity to incur such expenditure. It was further held that the fact that somebody other than the assessee (like in the instant case, the sister concerns) is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the old Act (now section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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