COMMISSIONER OF INCOME TAX V. CADILA LABORATORIES PVT. LTD.

ITR/297/1993

AI Insights

The case involves the Commissioner of Income Tax versus Cadila Laboratories Pvt. Ltd., where the primary legal issues pertained to the calculation of depreciation and investment allowance, and the admissibility of expenditure on samples distributed by the assessee. The Income Tax Appellate Tribunal had referred questions to the High Court concerning the proper interpretation and application of sections 37(3A) and 256(1) of the Income Tax Act, 1961. The Supreme Court's decision in Eskayfe was pivotal, influencing the court's approach to the admissibility of sample distribution costs as a business expense under section 37(3A).

• Counselvise Citation: [2001] 140 COUNSELVISE.COM (IT) 718324 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-12-2001
• Assessment Year: misc
• Other Referred Cases: C.I.T. vs. P.J.Chemicals Ltd., Eskayfe (now known as Smith Kline Beecham Pharmaceuticals [India] Ltd) Vs. C.I.T.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: NOTICE SERVED
• Assessee Lawyers: AKIL QURESHI
• Keywords: Cost of samples; Depreciation; Disallowance; Income Tax; Investment allowance; Subsidy
• Section: 256(1); 37(3A); 260(1)

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 297 of 1993 For Approval and Signature: Hon'ble MR.JUSTICE B.C.PATEL Sd/- and Hon'ble MR.JUSTICE D.A.MEHTA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus CADILA LABORATORIES PVT. LTD. -------------------------------------------------------------- Appearance: MR AKIL QURESHI FOR MR MANISH R BHATT for Applicant. NOTICE SERVED for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE B.C.PATEL and MR.JUSTICE D.A.MEHTA Date of decision: 06/12/2001 ORAL JUDGEMENT (Per : MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'C' has referred the following questions, two at the instance of the revenue and one at the instance of the assessee, under section 256(1) of the Income-tax Act,1961 (hereinafter referred to as 'the Act') : At the instance of Revenue : 1 \"Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to calculate the depreciation and investment allowance without deducting the amount of subsidy from the actual cost ?\" 2 \"Whether, the Appellate Tribunal is right in law and on fact in directing the Assessing Officer not to include 50% of the cost of samples in the computation for disallowance under section 37(3A) of the Act ?\" At the instance of Assessee: \"Whether the Income-tax Appellate Tribunal was right in law in holding that 50% of the expenditure on cost of samples distributed by the assessee should be included in the computation for disallowance u/s.37(3A) of the I.T.Act ?\" 2 In so far as the first question referred at the instance of the revenue is concerned the same stand concluded by the decision of the Apex Court in the case of C.I.T. vs. P.J.Chemicals Ltd., 210 I.T.R.830. Following the ratio of the said decision we hold that the Tribunal was right in law in directing the assessing officer to calculate the depreciation and investment allowance without deducting the amount of subsidy from the actual cost. We, therefore, answer the first question referred at the instance of the revenue in the affirmative i.e. in favour of the assessee and against the revenue. 3 The second question at the instance of the revenue and the question at the instance of assessee pertain to assessment year 1985-86. The assessee company is involved in manufacture of drugs and selling the same. For the purpose of its business it distributes samples of those drugs. The controversy is whether the expenditure incurred in distribution of such samples is admissible as a deduction in computing total income or is part of the expenditure disallowable under section 37(3A) of the Act. 4 It is not necessary to set out the facts in greater detail in light of the decision of the Apex Court in the case of Eskayfe (now known as Smith Kline Beecham Pharmaceuticals [India] Ltd). Vs. C.I.T., 245 I.T.R.116, wherein it is specifically held that the samples of prescription drugs to doctors to make them aware that such drugs were available in the market in relation to the cure of particular affliction and, therefore, to persuade them to prescribe the same in appropriate cases; in so doing, the same would tantamount to publicity and sales promotion and hence, it fell within the scope of Section 37(3A) of the Act and would be subject to the limitations as to allowability as prescribed in the said section. 5 The Tribunal having allowed 50% of the expenditure of costs of samples the revenue has challenged the said finding, while the assessee has challenged the finding of the Tribunal disallowing the balance 50% of the expenditure of costs of samples distributed. In light of the decision in the case of Eskayfe (Supra) the Tribunal shall have to compute the limit of disallowable sum under the provisions of Section 37(3A) and hence, we decline to answer the question referred to us at the instance of the assessee. The Tribunal shall adjust its decision under section 260(1) of the Act and pass orders as are necessary to dispose of the case in conformity with the aforesaid judgment. 6 The Reference stands disposed of accordingly with no order as to costs. Sd/- Sd/- (B.C.Patel, J) (D.A.Mehta, J) m.m.bhatt "