Law:

Section:

Section 37(3A) of the Income-tax Act, 1961 - Sales promotion expenses - Assessment year 1985-86 - Whether commission paid to agents on actual sales can be treated as sales promotion expenses within meaning of section 37(3A) - Held, no CASES REFERRED TO CIT v. Sutlej Cotton Mills Ltd. [1992] 194 ITR 66 / 63 Taxman 207 (Cal.), CIT v. Srinivasa Textile Processing Ltd. [ITRC No. 110 of 1994, dated 15-1-1997], CIT v. Bata India Ltd. [1993] 201 ITR 884 (Cal.), CIT v. Popular Automobiles Ltd. [1995] 212 ITR 611 / 80 Taxman 221 (Ker.), and CIT v. Klas Engg. (P.) Ltd. [ITRC No. 122 of 1998, dated 29-11-1999]. M.V. Seshachala for the Applicant. Sundaraswamy Ramdas for the Respondent. ORDER G.C. Bharuka, J. - This reference is made to this Court by the Tribunal under section 256(1) of the Income-tax Act, 1961 ('the Act'). The question of law involved herein is : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the commission paid to the agents on actual sales cannot form sales promotion expenses ?" 2. The assessee is a limited company. While framing the assessment order for the assessment year 1985-86, the Assessing Officer, among various other additions/disallowances, took into consideration the commission paid to the agents for the purpose of disallowance under section 37(3A) of the Act. He also deducted the amount of Central subsidy received by the assessee from the cost of the assets to arrive at the depreciation allowable for the year. In an appeal filed by the assessee, the Commissioner (Appeals) held that the commission paid to the agents should not be taken into consideration for the purpose of disallowance under section 37(3A) and the depreciation should be allowed without deducting the subsidy from the cost. Against the order of the Commissioner (Appeals), the department appealed before the Tribunal. Following the judgment of the Calcutta High Court in the case of CIT v. Sutlej Cotton Mills Ltd. [1992] 194 ITR 661 , the Tribunal held that the commission paid on actual sales cannot form sales promotion expenses. 3. The above question of law has arisen in the context of section 37(3A) which…

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