Commissioner Of Income Tax v. M/S Nuware India Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Commissioner of Income Tax. Vs. M/s Nuware India Ltd. I.T.C. No.19 of 1999Date of decision: 8.7.2010 -----Petitioner. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. K.K. Mehta, Sr. Standing Counselfor the revenue. Mr. Lokesh Sinhal, Advocate for the assessee. --- ADARSH KUMAR GOEL, J. 1. This order will dispose of I.T.C. Nos.19 and 20 of1999, as common question of law has been claimed. 2. Facts are being noticed from I.T.Case No.19 of 1999.The revenue has filed petition under Section 256(2) of the IncomeTax Act, 1961 (in short, “the Act”) seeking direction for referringfollowing question of law for opinion of this Court for theassessment year 1987-88:- “Whether, on the facts and in the circumstances of thecase, the ITAT was right in law in upholding deletionof disallowance of Rs.3,40,095/- out of advertisementand publicity expenses made by CIT(A) disregardingthe fact that these expenses were of capital nature?(Certificate copy of Reference Application and Statement of Facts are attached as Annexure P-1hereto” The above question is claimed to be arising out oforder of the Income Tax Appellate Tribunal, Delhi dated29.4.1997 in I.T.A. No.7819/DEL/90 for the assessment year1987-88. 3. The assessee claimed deduction under the head‘Advertisement and Publicity Expenses’ in the return filed for theassessment year in question, which was partly disallowed by theAssessing Officer on the ground that the expenditure was ofenduring nature and this amounted to capital expenditure,deduction of which was not permissible. This view was notaccepted by the CIT(A) and the Tribunal. The CIT(A) held that inview of judgment of Himachal Pradesh High Court in MohanMeakin Breweries Ltd.v. CIT[1979] 118 ITR 101, questionwhether expenditure was of capital nature or revenue nature, didnot arise under Section 37(3) of the Income Tax Act, 1961 (forshort, “the Act”). 4. We have heard learned counsel for the parties andperused the record. 5. Section 37(3) of the Act at the relevant time stood as under: - “Notwithstanding anything contained in sub-s.(1), anyexpenditure incurred by an assessee after the 31[st] dayof March, 1964, on advertisement or on maintenance of any residential accommodation including anyaccommodation in the nature of a guesthouse or inconnection with travelling by an employee or anyother person (including hotel expenses or allowancespaid in connection with such travelling) shall beallowed only to the extent, and subject to suchconditions, if any, as may be prescribed.” 6. A perusal of Section 37(3) of the Act itself shows thatthe advertisement and publicity expenses are allowed aspermissible deduction irrespective of nature of such expenses.The relevant observations of the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd.(supra) are as under:- “7.It is obvious from the provisions of sub-s.(3)quoted above that it contemplates an altogetherseparate and distinct head of deduction, namely,expenditure on advertisement. It is further clear that thisdeduction on account of expenditure on advertisement isadmissible “notwithstanding anything contained in sub-s.(1)”. The use of the non obstante clause in sub-s.(3)clearly excludes the considerations which arecontemplated by sub-s.(1) of s.37. It, therefore, followsthat if once it is found that a particular deduction can beclaimed as on account of expenditure on advertisementthe said deduction squarely falls within sub-s.(3) and thatbeing so the question whether the said expenditure is ofcapital nature or of revenue nature falls wholly out ofconsideration. Deduction on account of expenditure onadvertisement is qua advertisement and not qua itsrevenue or capital nature. The Tribunal seems to havemissed this aspect of the matter. We, therefore, find that this expenditure falling under subv-s.(3) of s.37should be treated as expenditure on advertisement anddeduction on that account should be given not onconsideration of the question whether it is of revenue orcapital nature but on considerations of the conditionsand restrictions contemplated by sub-s.(3) itself.” 7. The Kerala High Court inCITv. Navodaya225 ITR399 had followed the aforesaid view of the Himachal PradeshHigh Court in Mohan Meakin Breweries Ltd.(supra).Accordingly, we are unable to hold that the question claimed is areferable question of law, which is required to be referred foropinion of this Court. 8. Consequently, we dismiss these applications. (ADARSH KUMAR GOEL) JUDGE July 08, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE