COMMISSIONER OF INCOME TAX vs. M/S NUWARE INDIA LTD.

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.C. No.19 of 1999 Date of decision: 8.7.2010 Commissioner of Income Tax. -----Petitioner. Vs. M/s Nuware India Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. K.K. Mehta, Sr. Standing Counsel for 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 of 1999, 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 Income Tax Act, 1961 (in short, “the Act”) seeking direction for referring following question of law for opinion of this Court for the assessment year 1987-88:- “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in upholding deletion of disallowance of Rs.3,40,095/- out of advertisement and publicity expenses made by CIT(A) disregarding the fact that these expenses were of capital nature? (Certificate copy of Reference Application and

I.T.C. No.19 of1999 Statement of Facts are attached as Annexure P-1 hereto”

The above question is claimed to be arising out of order of the Income Tax Appellate Tribunal, Delhi dated 29.4.1997 in I.T.A. No.7819/DEL/90 for the assessment year 1987-88. 3. The assessee claimed deduction under the head ‘Advertisement and Publicity Expenses’ in the return filed for the assessment year in question, which was partly disallowed by the Assessing Officer on the ground that the expenditure was of enduring nature and this amounted to capital expenditure, deduction of which was not permissible. This view was not accepted by the CIT(A) and the Tribunal. The CIT(A) held that in view of judgment of Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT [1979] 118 ITR 101, question whether expenditure was of capital nature or revenue nature, did not arise under Section 37(3) of the Income Tax Act, 1961 (for short, “the Act”). 4. We have heard learned counsel for the parties and perused the record. 5. Section 37(3) of the Act at the relevant time stood as under: - “Notwithstanding anything contained in sub-s.(1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance 2

I.T.C. No.19 of1999 of any residential accommodation including any accommodation in the nature of a guesthouse or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.” 6. A perusal of Section 37(3) of the Act itself shows that the advertisement and publicity expenses are allowed as permissible 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 altogether separate and distinct head of deduction, namely, expenditure on advertisement. It is further clear that this deduction on account of expenditure on advertisement is admissible “notwithstanding anything contained in sub-s. (1)”. The use of the non obstante clause in sub-s.(3) clearly excludes the considerations which are contemplated by sub-s.(1) of s.37. It, therefore, follows that if once it is found that a particular deduction can be claimed as on account of expenditure on advertisement the said deduction squarely falls within sub-s.(3) and that being so the question whether the said expenditure is of capital nature or of revenue nature falls wholly out of consideration. Deduction on account of expenditure on advertisement is qua advertisement and not qua its revenue or capital nature. The Tribunal seems to have missed this aspect of the matter. We, therefore, find 3

I.T.C. No.19 of1999 that this expenditure falling under subv-s.(3) of s.37 should be treated as expenditure on advertisement and deduction on that account should be given not on consideration of the question whether it is of revenue or capital nature but on considerations of the conditions and restrictions contemplated by sub-s.(3) itself.” 7. The Kerala High Court in CIT v. Navodaya 225 ITR 399 had followed the aforesaid view of the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. (supra). Accordingly, we are unable to hold that the question claimed is a referable question of law, which is required to be referred for opinion of this Court. 8. Consequently, we dismiss these applications. (ADARSH KUMAR GOEL) JUDGE July 08, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 4