Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Claim that articles had been distributed to customers as sales incentive---Finding that there had been an indirect distribution of profits among members of assessee-association--­Expenditure on articles was not deductible---Indian Income Tax Act, 1961, S.37. The assessee was an association of persons deriving income from two petrol bunks. It had made a profit of Rs.1,64,000 for the assessment year 1982-83 according to the return filed by it. That amount was arrived at after debiting the sum of Rs.66,820 as sales promotion expenditure or sales incentive to. customers. The claim so made was ,disallowed by the Income-tax Officer. He held that this was only a method of distributing the profits among the members. The articles even according to the assessee were distributed among the number and ex-­members. The number of ex-members was not specified by the assessee. The value of the articles so distributed was over 30 per cent. of the amount value as profit for the year. The expenditure was disallowed by the Assessing Officer and the Tribunal. On a reference: Held, that the Tribunal had on a question of fact held that the objection of distribution was only to enable the recipients to share the profits of the business of the assessee for the year and was not a genuine expenditure on giving sales incentives. The expenditure was not deductible. JUDGMENT R. JAYASIMHA BABU, J.---The assessee is aggrieved by the order of the Tribunal, which had held that a sum of Rs. 66,820 debited to the profit and loss account as sales incentive to customers is not a deductible item of expenditure. At the instance of the assessee, the following question of law has been referred to us for our consideration: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding and had valid materials to hold that the expenditure of Rs.66,820 was not incurred wholly and exclusively for the purpose of the assessee's business?" The assessee is an association of persons deriving income from two petrol bunks. It had made a profit of Rs.1,64,000 for the assessment year 1982-83 according to the return filed by it. That amount…

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