Law:

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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Sales commission which is given to various sales representatives or dealers is allowable [A.Y 1984-85 & 1985-86] Sales commission which is given to various sales representatives or the dealers would not come within the definition or mischief of sales promotion, but would altogether be different because sales promotion is altogether a different connotation for the purposes of the Income-tax Act. Therefore, the expenditure incurred on incurred on payment of commission on sales cannot be treated as sales promotion expense, and, therefore, cannot be taken into account while computing the disallowance under section 37(3A). JUDGMENT (ORAL JUDGMENT) R.S. Garg, J.-The Income-tax Appellate Tribunal, Ahmedabad Bench "B", at the instance of the Revenue, has referred the following question for the opinion of this court: "Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in law in holding that the expenditure of Rs. 12,86,711 in the assessment year 1984-85 and Rs. 13,13,975 in the assessment year 1985-86 incurred on payment of commission on sales cannot be treated as sales promotion expenses, and, therefore, cannot be taken into account while computing the disallowance under section 37(3A) of the Income-tax Act, 1961?" The short facts necessary for disposal of the present case are that the assessee is a limited company engaged in manufacture and sale of yarns, etc. In the assessment year 1984-85, the Assessing Officer disallowed Rs. 3,35,000 under section 37(3A) of the Income-tax Act. The details of the working is given in paragraph 7 of the reference. From the reference, it would clearly appear that major part of the aggregate which was taken for determination of the disallowance was sales commission amounting to Rs. 12,86,711. The submission of the assessee, all through, was that…

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