Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that commission paid on sales is not sales promotion expenditure, and therefore, provisions of s. 37(3A) have no application ?

High Court Of Karnataka

CIT vs. Klas Engineering (P) Ltd.

Sections 37(3A), 37(3B)

Asst. Year 1984-85

V.K. Singhal & T.N. Vallinayagam, JJ.

ITRC No. 122 of 1998

29th November, 1999

Counsel Appeared

M.V. Seshachala, for the Applicant : None, for the Respondent

ORDER

BY THE COURT :

The Tribunal has referred the following question of law arising out of its order dt. 16th April, 1992, pertaining to the asst. yr. 1984-85.

“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that commission paid on sales is not sales promotion expenditure, and therefore, provisions of s. 37(3A) have no application ?”

2. In the assessment the ITO had disallowed Rs. 3,47,665. That was the amount the assessee had paid towards commission on sales. This had been treated as sales promotion expenses by the ITO. The assessee had challenged this finding in appeal filed before the CIT(A). The CIT(A) held that the provisions of s. 37(3A) had no application to commission paid on sales. He gave relief to the assessee in this regard. The Revenue had raised a ground in the appeal filed to the Tribunal.

3. The Tribunal followed the decision of the Calcutta High Court in the case of CIT vs. Sutlej Cotton Mills Ltd. (1992) 194 ITR 66 (Cal) and held that commission payment does not constitute sales promotion expenses and, therefore, disallowance under s. 37(3A) was not proper. Following the said decision, the Tribunal upheld the order of the CIT(A) in this regard.

4. The matter is now covered by the decision given in the case of CIT vs. Srinivasa Textile Processing Ltd. (ITRC 110/1994, dt. 15th Jan., 1997) [reported at (2002) 177 CTR (Kar) 10 —Ed] wherein it was observed that ‘sales promotion’ would have the meaning of ‘advertisement, publicity i.e., by providing certain incentive or taking certain other steps by which the product of the manufacturer could be popularised to promote the sale and would (sic-not) include the amount paid to the commission agent. In view of the above we are of the view that the Tribunal is right in law in holding that commission paid on sales is not sales promotion expenditure, and therefore, provisions of s. 37(3A) have no application. Reference is accordingly answered in favour of the assessee and against the Revenue. Sri S. Parthasarathi, learned counsel to file the memo of appearance within two weeks.

[Citation : 258 ITR 779]

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