Commissioner of Income Tax vs Lilasons Breweries P. Ltd.

In pursuance of the order dated August 30,1997, passed by this court in MCC No. 679/93 the Income Tax Appellate Tribunal, Indore Bench, Indore (in short the Tribunal), has drawn up a statement of facts. Be it noted that while this court called the statement of facts the following question of law was framed:

Whether, on the facts and in the circumstances of the case the learned Tribunal was justified in law in holding that the presentation articles worth Rs. 5,31,675 distributed by the assessee are disallowable u/s 37(3), read with Rule 6B(1)(a)?

The facts which are essential to be stated are that the assessee who was engaged in the trading of breweries incurred an expenditure of Rs. 2,09,040 on 600 briefcases. When a claim in that regard was put forth, the Assessing Officer disallowed Rs. 1,79,040 under Rule 6B. The assessee had further claimed an expenditure of Rs. 2,52,049 towards costs of silver and fabrication work 40 kmg set with tray under the head "Trade promotion expenses". The Assessing Officer allowed Rs. 2,000 and disallowed the balance of Rs. 2,50,049 under Rule 6B. Out of the publicity material expenditure of Rs. 2,08,468, the Assessing Officer allowed Rs. 1,05,900 and disallowed the balance under the aforesaid rule. The Assessing Officer was of the view that the expenditure in respect of the articles for presentation was of the value of more than Rs. 50. Thus, he made an addition of Rs. 5,31,675 to the income of the assessee.

Being aggrieved by the aforesaid order the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) who deleted the impugned addition and observed that the claim of the assessee was not covered within the meaning of Rule 6B inasmuch as none of the articles for presentation carried any advertisement for the assessee. He recorded a finding that the expenditure claimed under the head "Trade promotion expenses" was under a definite scheme for promotion of sales and the items involved were to be presented to its various dealers and distributors by the assessee only on attaining some specific targets.

Being dissatisfied with the aforesaid order the Revenue preferred an appeal before the Tribunal and the Tribunal has recorded its finding as under:

We have heard the rival parties and gone through the relevant record as also details of the scheme launched by the assessee-company for promotion of its sales. We are in agreement with the learned Commissioner of Income Tax (Appeals) that Rule 6B is not applicable with regard to the expenditure disallowed under the marketing assistance as also under the head ''Publicity material''. As regards the expenditure disallowed under trade promotional expenses, we are again in agreement with the learned Commissioner of Income Tax (Appeals) that the expenditure was incurred under a specific scheme; in that boosting of the assessee''s sales. We, therefore, endorse the finding of the Commissioner of Income Tax (Appeals).

Thereafter, as has been indicated hereinabove, an application u/s 256 of the Act was filed and this court had called for the statement of the case.

We have heard Mr. Sanjay Lai, learned Counsel for the Revenue and Mr. S. Ushrethi and Mr. A.P. Shrivastava, learned Counsel for the assessee.

As is manifest, there is no factual dispute. The Tribunal on the basis of the material brought on record has come to hold that the amount was spent on trade promotional expenses and the expenditure were incurred under a specific scheme. The Commissioner of Income Tax (Appeals) had also recorded a finding in favour of the assessee.

In this context, we may refer with profit to the decision rendered in the case of Commissioner of Income Tax Vs. S.P. Textiles Co., wherein it has been held that if the assessee incurs expenditure in distribution of the articles intended for its purchasers, depending on their performance, the amount spent is neither an amount spent in publicity nor for advertisement and as the said amount is spent under an incentive scheme and, therefore, Rule 6B does not apply.

In Commissioner of Income Tax Vs. Allana Sons Pvt. Ltd., while dealing with the applicability of Rule 6B(1)(a) it has been held that when the presentation of the articles is made just for business promotion and not for advertisement, Rule 6B would not get attracted.

It is worth noting that in the case at hand it is patent that trade promotion expenses the articles have been given conditionally and presentation of the articles neither bear the name of the company nor its logo and hence, it cannot be treated as meant for advertisement. Therefore, we are inclined to think that Rule 6B would not be attracted and hence, it would come within the trade promotion and not advertisement. We may also clarify that there is no material brought on record that consumer gifts and free gifts were given. What has been given, as the factual matrix would show, are the briefcases on achieving the target and no presentation was carried out. It was given under a definite scheme for promotion of sales and the items were to be presented by the assessee only on attaining some specific targets.

In view of the aforesaid, we are of the considered opinion that the view taken by the Tribunal is correct and we answer the reference in the affirmative in favour of the assessee arid against the Revenue.