D.V. Shylendra kumar, J. - (1.) IN this reference under Section 256(1) of the INcome-tax Act, 1961 (hereinafter referred to as "the Act" for short), made at the instance of the assessee, the Bangalore Bench of the INcome-tax Appellate Tribunal, has referred the following question for our opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred by the assessee towards conducting seminars and exhibitions would fall under the purview of Section 37(3A) of the INcome-tax, Act, for the purpose of disallowance on the ground that such expenditure was of the nature of advertisement and sales promotion expenses and when in any case, the two sums of Rs. 1,34,687.88 and Rs. 5,978.60 out of the said expenditure were clearly of the nature of payments made to hotels ?"
(2.) THE brief facts, as could be made out from the statement of the case and other material on record are that for the assessment year 1984-85, the assessee, which is a precision tools manufacturing company limited, filed a return of its income and in respect of certain items of expenditure, claimed as deductible expenditure under Section 37 of the Act, had also indicated that some amounts in the said expenditure, did attract the provisions of Section 37(3A) of the Act and accordingly had disallowed 20 per cent, of such items of expenditure which attracted the provisions of Section 37(3A) of the Act. The Assessing Officer completed the assessment as per the assessment order dated August 29, 1986, and annexure III to the assessment order indicates the items of expenditure in respect of which the provisions of Section 37(3A) of the Act were attracted and accordingly 20 per cent, of such expenditure had been disallowed for claiming deduction under Section 37 of the Act. The Commissioner of Income-tax, on a perusal of the assessment order, was of the view that a few more items of expenditure in respect of which the assessee had claimed deduction under Section 37 also attracted the provisions of Section 37(3A) of the Act and such items of expenditure noticed by the Commissioner of Income-tax were "expenses incurred" in connection with holding or conducting certain seminars and hotel charges and conveyance charges incurred in connection with such seminars ; that, the Commissioner being of the view that such items of expenditure also being "expenditure" in the nature of advertisement or sales promotion attracting the provisions of Section 37(3A) of the Act and the Assessing Officer having not applied the provisions of Section 37(3A) of the Act in respect of these items of expenditure and such action having resulted in loss to the Revenue, invoked his powers under Section 263 of the Act, issued notice to the assessee and after hearing the assessee, passed an order with directions to the Assessing Officer to modify the assessment order so as to deduct 20 per cent. of the amount of expenditure claimed and allowed earlier, incurred on holding of conferences/seminars and payment made to hotels. The assessee being aggrieved by this revisional order of the Commissioner, appealed to the Income-tax Appellate Tribunal. The Appellate Tribunal found, as a matter of fact, that the activity of the assessee in holding the seminars/conferences wherein dealers and representatives of the assessee-company participated and for the purpose of educating them on the latest precision tools produced by the assessee, held that it was essentially an "expenditure" in the nature of advertising expenditure as it was done with a view to promote the sales of the assessee in respect of such products. The Tribunal also found that the payments made to hotels in connection with the holding of seminars nevertheless constituted a "payment made to hotels" and an expenditure which the assessee had claimed as deductible expenditure and as such continued to be an expenditure in the nature of hotel expenses, also attracting the provisions of Section 37(3A) of the Act and in this view of the matter, dismissed the appeal.
(3.) THE assessee, being aggrieved by this order, sought for referring the question of law said to be arising out of the order of the Tribunal, for the opinion of this court. The Tribunal has slightly modified the question of law as was sought for reference by the assessee and has referred for our opinion, the question of law in the modified form, as indicated above.;