TMI Blog1985 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... e film which was under production. In the accounting year relevant to asst. yr. 1981-82, there was another agreement under which Shri J. Omprakash, was to receive from the assessee an amount of Rs. 5,00,000 for directing another film. The amounts paid to Shri J. Omprakash were as follows: Asst. yr. 1979-80 Rs. 36,000 Remuneration paid for the work done in the capacity of Managing Director of the assessee-company. Rs. 3,50,000 Remuneration paid for professional work of directing, the motion picture under production. Rs. 3,86,000 . Asst. yr. 1981-82 Rs. 21,000 Remuneration paid for the work done in the capacity of Managing Director of the assessee company. Rs. 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us and the contention is that the over all limit laid down under s. 40(c) of the Act of Rs. 72,000 applied to the above mentioned payments also. The assessee, on the other hand relied on the reasons given in the order of the CIT(A). 3. We have considered the rival submissions and facts on record. We find that the point under consideration is concluded in favour of the assessee by a decision of the Karnataka High Court in T. T. (P) Ltd. vs. ITO Company Circle (1980) 121 ITR 551 (Kar). In that case, the assessee held appointed a firm as selling agent for the sale of its goods. The partners of the said firm came under the category of persons referred to in s. 40(c) of the Act, inasmuch as, there was relationship between the directors of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should follow. The goods, services and facilities referred to in s. 40A(2)(a) are those which have a market value, which are commercial in character and which are nowadays provided by independent organisations." In the present case, the assessee has provided services under separate agreements as independent entrepreneur. The services has not been rendered by him in the capacity of director of the assessee-company. consequently, the amounts in question would not be taken into account for computing the disallowance under s. 40(c) of the Act. The amounts in question shall have to be scrutinised under s. 40(2)(a) of the Act; in order to determine whether the said expenditure incurred by the assessee was excessive or unreasonable having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Vishal International Productions (P) Ltd. vs. ITO. The Tribunal relied on the above mentioned decision of the Karnataka High Court and decided the point in favour of the assessee. One of the members of the said Bench of the Tribunal which had decided the assessee's appeal for the asst. yrs. 1972-73 1974-75 (Shri A. Krishnamurthy) was also a member of the Bench which decided the appeal of M/s Vishal International Productions (P) Ltd. The said member observed that since a decision of the High Court was available, the Tribunal as matter of judicial property was bound to follow the said decision in preference to the earlier decision of the Tribunal. It is true, as contended on behalf of the Department that one Bench of the Tribunal shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said disallowances on the ground that the provisions of s. 37(3D) were attracted. This contention was rejected by the ITO, but was accepted by the CIT(A), and the Department has come in appeals before us on this point for the asst. yrs. 1979-80 and 1980-81. Sec. 37(3D) as in force in the relevant assessment years was in the following words: "(3D) in a case where an assessee has set up industrial undertaking for the manufacture or production of any articles, nothing in sub-s. (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assessee for the purposes of the business of such undertaking in the previous year in which such undertaking begins to manufacture or produce such articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the undertaking itself had "begun" to manufacture pictures in those two years. In this view of the matter, provisions of s. 37(3D) would not apply. The ld. CIT(A) committed an error in holding that the provisions of that sub-section were attracted. The ld. CIT(A) has held that the provisions of s. 37(3D) would apply for manufacture or every new product although the manufacturing might have been done by an existing industrial undertaking. The language of s. 37(3D) does not justify such interpretation. The ld. CIT(A) has observed that since the provision in sub-s. (3D) was in force for only two years, that provision should be liberally interpreted. However, while interpreting the provision, it is not permissible to do violence to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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