COMMISSIONER OF INCOME TAX V. LAKHANPAL NATIONAL LTD

ITR/226/1995

AI Insights

The case revolves around a dispute concerning the deductibility of an amount of Rs. 97,662 claimed by Lakhanpal National Ltd. for the assessment year 1980-81. The amount was reimbursed to Sales Representatives of distributors as part of an incentive agreement. The assessing officer disallowed this deduction, categorizing it under 'sales promotion' expenses, which are subject to specific disallowances under Section 37[3A] of the Income Tax Act. The Tribunal, referencing judgments from the Calcutta High Court, overturned this decision, leading to the Revenue's appeal to the High Court of Gujarat. The High Court affirmed the Tribunal's decision, distinguishing between 'sales' and 'sales promotion' and supporting the view that the reimbursement was for services rendered, not for sales promotion.

• Counselvise Citation: [2006] 140 COUNSELVISE.COM (IT) 730478 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 14-08-2006
• Assessment Year: misc
• Other Referred Cases: CIT Vs. The Statement Ltd., CIT Vs. Bata India Ltd., CIT Vs. Zippers India
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANISH SHAH
• Assessee Lawyers: MONA BHATT
• Keywords: Disallowance; Income Tax; Reimbursement; Sales Promotion
• Section: 37(3A)

Judgement Text

"ITR/226/1995 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 226 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= COMMISSIONER OF INCOME TAX - Applicant(s) Versus LAKHANPAL NATIONAL LTD - Respondent(s) ========================================================= Appearance : Mrs. MONA M BHATT for Applicant(s) : 1, MR MANISH J SHAH for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE M.R. SHAH Date : 14/08/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG) ITR/226/1995 2/4 JUDGMENT 1. At the instance of the Revenue, Income-tax Appellate Tribunal, Ahmedabad Bench “C” Ahmedabad has made this Reference for opinion of the High Court on the following question. “Whether, on the facts and circumstances of the case, the Tribunal is right in hoping that the amount of Rs. 97,662/- should not have been included for the purpose of disallowance u/s. 37[3A]?” 2. Short facts are that, for the assessment year 1980-81, the assessee claimed deduction for amount of Rs. 97,662/-, submitting inter alia, that this money was used for reimbursing part of the incentive paid to the Sales Representatives of distributors as agreed between the assessee and its distributors. However, the submission did not find favour with the assessing officer and on an appeal being dismissed, the assessee took up the matter to the Tribunal. The Tribunal placing its strong reliance upon the judgment of the Calcutta High Court in the case of CIT Vs. The Statement Ltd., reported in 198 ITR 582 and ITR/226/1995 3/4 JUDGMENT CIT Vs.Bata India Ltd., reported in 201 ITR 884, held that the said reimbursement in accordance with the agreement could not be termed to be an amount spent for sales promotion, with this finding, the Tribunal allowed the appeal. 3. Mrs. Bhatt, learned counsel for the Revenue submits that Section 37[3A][i] relates to disallowance in relation to the money spent for advertisement, publicity and sales promotion and as the amount paid to the Sales Representatives was for sales promotion, reimbursement would fall within the mischief of “sales promotion” and as such, was rightly disallowed by the assessing officer. On the other hand, learned counsel for the assessee submitted that there is a marked distinction between the terms “sales” and “sales promotion” and every amount spent for achieving good sales would not fall within the mischief of expenditure for “sales promotion”. 4. Division Bench of this Court, in the matter of CIT Vs. Zippers India, reported in 284 ITR 142, placing its reliance upon the judgment in the matter of Bata India Limited [supra] has ITR/226/1995 4/4 JUDGMENT observed that there is a marked distinction between the terms “sales” and “sales promotion”. In the said matter, the Court observed that the commission paid for local sales as well as for export sales could not be considered to be sales promotion expenditure for purposes of disallowance considering the fact that the commission was paid for the services rendered. 5. We have heard the parties at length. 6. Identical is the situation here. Incentive paid to the Sales Representatives of the distributors is for the services rendered by them and if that be so, the judgment in the matter of Zippers India Ltd. [supra] would apply with full force. The Tribunal was right and justified in holding against the Revenue. The question is answered against the interest of the Revenue and in favour of the assessee. The Reference stands disposed of. No costs. [R.S. GARG, J.] [M.R. SHAH, J.] pirzada/- "