COMMISSIONER OF INCOME TAX Vs. DASCROI TALUKA CO OP PURCHASE AND SALES UNION LIMITED

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following question has been referred to us for our opinion :

(2.) THE assessee in this case is a co operative society engaged in the business of dealing in sugar, kerosene, steel, etc., distributing the same to its members, both individuals and societies. The assessment year under consideration is the asst. year 1970 71, the relevant accounting period being the year ending June 30, 1969. The assessee celebrated silver jubilee on completing twenty five years of its existence and on this occasion it sent certain employees to Bombay for the purpose of purchase of wall clocks for presentation to other co operative societies who were members of the assessee. The assessee also purchased certain household stainless steel utensils which were distributed to the members of the society. The break up of the expenses in this connection was as follows : Rs. 3,223.40 spent on account of travelling expenses of the members of the managing committee to and from Bombay for the purchase of utensils for presentation on the occasion of the silver jubilee, and Rs. 52,048.59 spent on the purchase of utensils like stainless steel bowls, plates, tumblers, spoons, etc., for presentation on the occasion. These are the only two items of expenditure which are relevant for the purposes of this judgment. The ITO did not allow the expenditure on these two items in assessment while computing the assessee's total income. The appeal preferred by the assessee succeeded and the AAC accepted the claim for deduction of these two items. The Department took the matter in appeal to the Tribunal and the Tribunal dismissed the appeal of the Revenue. The Tribunal held that the presentation of articles to its members having business transactions was on the occasion of the silver jubilee celebrations, and the expenses incurred in connection with travelling for the purchase of the articles were expenses in the course of and for the purpose of the business and were intended as incentive or encouragement to those members in the course of the business activities or transactions. The Tribunal further held that though the expenses incurred were with a view to encourage the business activities which in turn was calculated to increase the business of the assessee itself, these items could not be regarded as advertisement expenses as contended for by the Revenue, because there was no question of advertising its products or publicising the same amongst the member societies who were already having business transactions with the assessee. The Tribunal, therefore, held that the expenditure could not be said to be governed by any limitation prescribed under S. 37(3) or by any rules framed in connection with advertisement expenditure. The Tribunal also rejected the contention urged on behalf of the Department that the expenses were disproportionate since the Tribunal found that the factum of the expenditure was not in dispute and it was not the department's contention nor was there any material to show that the expenditure was incurred for any extra commercial consideration. The contention of the Department that since part of the income of the assessee was exempt, only proportionate amount should be allowed as deduction disallowing the proportion attributable to the said exempted part of the income, was also rejected by the Tribunal. Thereafter, at the instance of the Revenue, four questions were sought for in the application under S. 256(1) but, ultimately, the Tribunal has referred the question hereinabove set out for our opinion. It is clear that these two items of expenditure were spent by the assessee society on the occasion of its silver jubilee celebrations. As observed by this High Court in CIT vs. S. L. M. Maneklal Industries Ltd. (1977) 107 ITR 133 (Guj) :

(3.) IT cannot be said that this amount was for the purpose of advertisement. It was more by way of establishing goodwill rather than of advertising that this amount was spent and hence the question of invoking the provisions of S. 37(3) of the IT Act, 1961, and r. 6B of the IT Rules, 1962, does not arise. It is only if the amount was spent for advertisement that the restrictions placed by r. 6B of the IT Rules which deals with restrictions on presentation articles which can be presented by way of advertisement, would come into play. Since we have come to the conclusion that this amount was spent for the purpose of generating goodwill and inducing the members to continue to maintain good relations with the society, it cannot be said that the amounts were spent by way of advertisement. The society was not distributing these articles to all its customers, members as well as non members, but it was distributing its presents in the shape of stainless steel utensils, etc., only to its members.