Ajit K.Sengupta, J. - (1.) Those two references--one under Section 256(1) of the Income-tax Act, 1961, and the other under Section 256(2) of the said Act--both at the instance of the Revenue, arise out of the appellate order of the Tribunal for the assessment year 1984-85. The following questions have been referred to this court : Income-tax Reference No. 91 of 1990 under Section 256(1) of the Act : " Whether, on the facts and in tbe circumstances of the case, the Appellate Tribunal was justified in law in holding that the sum of Rs. 6,31,76,886 paid as commission to wholesale dealers and retail agents was not sales promotion expenses and, therefore, not disallowable under Section 37(3A) of the Income-tax Act, 1961 ?" Income-tax Reference No. 1 of 1992 under Section 256(2) of the Act : " 1. Whether in interpreting Section 37(3A) of the Income-tax Act, 1961, as effective from April 1, 1984, the Tribunal is justified in holding that only wasteful expenditure incurred on items like advertisement, publicity, etc., are covered by the provision and not expenditure on actual services received by the asscssee when Section 37(3A) read with Section 37(3B) of the Income-tax Act, 1961, includes within its fold expenditure incurred on running and maintenance of aircraft and motor cars and payments made to hotels also ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the expenditure on commission and discount to wholesale dealers and agents amounting to Rs. 6,31,76,886 is not covered by Section 37(3A) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the expenditure of Rs. 1,87,411 on miscellaneous advertisements is not covered by Section 37(3A) of the Income-tax Act, 1961 ? 4. Whether, in view of the fact that before the Commissioner of Income tax, the assessee admitted that, to a large extent, the amount of Rs. 9,94,891 represented interest relatable to the security deposits made by the employees, the Tribunal was justified in not agreeing with the finding of the Commissioner that the point should be restored to the Assessing Officer to consider the applicability of Section 40A(8) of the Income-tax Act, 1961 ?"
(2.) The only question referred in Income-tax Reference No. 91 and questions Nos. 1 and 2 in Income-tax Reference No. 1 of 1992 touch one and the same issue, namely, whether commission and discount allowed to wholesale dealers and retail agents fall within the import of the expression "sales promotion" occurring in Section 37(3A) of the Act. The fact is that, for the assessment year 1984-85, the previous year being the calendar year 1983, the Assessing Officer disallowed a sum of Rs. 23,33,638 under Section 37(3A) and computed the total income at Rs. 4,52,49,050.
(3.) Subsequently, the Commissioner of Income-tax called for and, on examination of the records of assessment, found that the assessee had claimed and was allowed expenditure of Rs. 6,31,76,886 as commission paid to wholesale dealers and retail agents. The Commissioner of Income-tax was of the view that the above amount was covered by the expression " sales promotion " under Section 37(3A) of the Act and, therefore, 20 per cent. of the same was to be disallowed. He has also observed that, in the absence of statutory definition of the term " sales promotion ", any expenditure for effecting sales, such as, sales organisation, commission paid to salesmen, etc., and whatever expenses which were in connection with sales would constitute an expenditure on " sales promotion ". He, accordingly, directed the Assessing Officer to recompute the total income of the assessee after applying his mind to the expenditure in question " by relating this to the provision of Section 37(3A) of the Act".;