Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1996-97 - Assessee-company was engaged in business of trading in scouring powder, pickles, etc. - During relevant assessment year, assessee claimed expenditure for advertisement of pickles marketed by it, which were manufactured by its sister concern - Assessing Officer disallowed assessee's claim holding that advertisement expenditure incurred by assessee on behalf of its sister concerns could not be allowed as expenses attributable to its business - Whether since assessee had incurred expenses to earn profits in its business of marketing and it had incurred expenses not in its personal capacity as an agent to products manufactured by its sister concerns, but in its capacity as a businessman in marketing products by itself, expenditure in question was allowable - Held, yes FACTS The assessee-company was engaged in the business of trading in scouring powder, pickles, etc., which were marketed by it and manufactured by its sister concerns. The assessee claimed expenditure for advertisement. The Assessing Officer observed that there was no memorandum of understanding or agreement between the assessee and manufacturing company in this regard and held that the advertisement expenditure incurred by the assessee on behalf of its sister concerns could not be allowed as expenses attributable to its business. On appeal, the Commissioner (Appeals) found that the assessee had been acting as an agent for marketing the products and incurred expenditure towards display and screening of advertisements during exhibition and in the absence of any validily executed agreement or understanding, expenditure could not be allowed and dismissed the appeal. On further appeal, the Tribunal allowed the expenditure holding that the advertisement expenditure could not be strictly construed as expenditure incurred for promoting the products, but also for the purpose of the assessee's trade as the assessee itself was a marketing agent of the products. On appeal : HELD A careful reading of section 37(1) makes it clear that for allowing any expenditure while computing the income chargeable…

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