COMMISSIONER OF INCOME TAX VS VENEERS AND LAMINATIONS (INDIA) LTD.
1998 P T D 2353
[222 I T R 30]
[Kerala High Court (India)]
Before V. V. Kamat and G. Sivarajan, JJ
COMMISSIONER OF INCOME TAX
versus
VENEERS AND LAMINATIONS (INDIA) LTD.
Original Petition No. 15735 of 1994-S, decided on 26/02/1996.
Income-tax---
----Reference---Business expenditure---Disallowance---Expenditure on sales promotion --- Scope of S.37(3-A) & (3-B), Indian Income Tax Act, 1961-- Commission on sales does not amount to expenditure on sales promotion-- Tribunal correct in holding that such expenditure could not be disallowed-- No question of law arose from its order---Indian Income Tax Act, 1961, Ss.37 & 256.
Reading subsections (3-A) and (3-B) of section 37 of the Income Tax Act, 1961, it is clear that the expression "sales promotion" is used in conjunction with the words "advertisement" and "publicity". The use of the conjunction "and" shows that the sales promotion activity should flow from the advertisement and publicity in regard thereto. The amount of commission is necessarily co-related to the corresponding amount of sales and although the intention is to enhance and improve the business and consequently the sales of the assessee, properly understood, commission could not be a sales promotion activity. Even otherwise, commission as it is understood is also payment as remuneration to the person earning and in that sense also could not be understood as in the nature of sales promotion.
Held, dismissing the application for reference, that the Tribunal was right in holding that the commission paid on export sales could not be taken into account for purposes of disallowance under section 37(3-A) of the Act. No question of law arose from its order.
CIT v. Popular Automobiles Ltd. (1995) 212 ITR 611 (Ker.) ref.
P.K.R. Menon, Senior Advocate and N.R.K. Nair for Petitioner.
P. Balachandran and R. Sivaramakrishnan for Respondent.
JUDGMENT
V.V. KAMAT, J.---Under section 256(2), the Revenue seeks reference of the following question:
"Whether, on the facts and in the circumstances of the case and on an interpretation of section 37(3-A) of the Income Tax Act, 1961, the commission paid on export sales is to be reckoned for purpose of disallowance under section 37(3-A) as forming part of sales promotion expenses?"
The Tribunal has declined by rejecting the application of the Revenue by the order, dated December 6, 1993, holding on facts that the expenses sought to be incurred as such did not form part of the business expenditure as such for its promotion justifiable excluding the same from the purview of section 37(3-A) of the Act.
The year in question is 1985-86 in regard to which the Income-tax Officer included a sum of Rs.33,000 towards commission paid on export sales for the purpose of disallowance under the above section.
The first appellate authority (Commissioner of Income-tax (Appeals)) held that this amount of commission was paid to an agent for rendering specific services for procuring orders for sales and ensuring payment from customers and for rendering services after sales. Naturally it took, the view that this amount relating to the payment of commission charges did not form part of the business promotional expenditure and had to be excluded from the purview of the provisions of section 37(3-A) of the Income Tax Act.
The Revenue got the same result from the Income-tax Appellate Tribunal.
Reading section 37 of the Act it would be seen that it relates to the process of computation of income chargeable under the head "Profits and gains of business or profession". One of such items of expenditure to be considered in computing the income chargeable under the above head is considered in subsection (3-A) of the Act relating to the aggregate expenditure incurred by an assessee on any one or more of the items specified is subsection (3-B). The provision of the text as is relevant is reproduced below:
"Advertisement, publicity and sales promotion."
Reading the provisions of subsections (3-A) and (3-B), thus, together and the factual situation that the amount was paid as commission to the representatives of the assessee who procured orders from prospective customers and brought about sales, it is seen that the payment of commission had nexus and relation with the sales that are effected and not otherwise. The amount of commission are necessarily co-related to the corresponding amount of sales and although the intention is to enhance and improve the business and consequently sales of the assessee, properly understood the same could not be a sales promotion activity. To appreciate this aspect a bare reading of the provisions of subsection (3-B) would be of assistance in the process. The word "sales promotion" as is used will be seen to have been used in conjunction with the words "advertisement and publicity". In this sense the importance of the use of the conjunction "and necessarily gets co related to see the sales promotions activity flowing from advertisement and publicity in regard thereto. Even otherwise commission as it is understood is also payment as remuneration to the person earning and in that sense also could not be understood in its effect in the nature of sales promotion.
Learned senior counsel has placed for our consideration a more or less similar view of this Court in CIT v. Popular Automobiles Ltd. (1995) 212 ITR 611.
In addition we find that in regard to the same assessee in Original Petition No. 13828 of 1994---CIT v. Veneers and Laminations (India) Ltd. by the judgment, dated November 3, 1994, although without reasons, depending on the order in Original Petition No.2867 of 1993---CIT v. Popular Automobiles Ltd. (1995) 212 ITR 611, (Ker.), this Court has already declined reference sought for by the Revenue. For the above reasons, the petition stands dismissed.
M.B.A./1508/FCPetition dismissed.