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IN THE HIGH COURT OF BOMBAY
M.L. Pendse A.P. Shah, JJ ... Petitioners.
Versus
D.S. Sexena, Income Tax Officer, C.C. Bom. and another... Respondents.
Writ Petition No. 519 of 1984, decided on 15-7-1993.
Advocates appeared :
Aspi Chinoy with P.J. Pardiwalla instructed by M/s Dhru and Company, for the petitioners.
G.S. Jetly with P.S. Jetly and Ms. Sengupta, for the respondents.
Article 19 (1) (a)-See Income Tax Act. 1961, Section 37 (3-A) and (3-D).
Section 37 (3-A) to (3-D)-Constitution of India, Article 19 (1) (a) - Advertisement-Expension-Restriction on after a certain limit not deliberate or device to limit right of commercial speech or infringing Article 19 (1) (a) of Constitution.
It is impossible to accede to the submission that the Parliament had found deliberate device in the guise of the tax to limit the right of advertiser of commercial aspect. It is also difficult to accede to the submission that the enactment of sub-sections (3-A) and (3-B) of Section 37 of the Act has direct inevitable consequences of infringing upon the protection guaranteed under Article 19 (1) (a) of the Constitution of India. Sub-section (3-A) prescribes that when the aggregate expenditure incurred by the assessee exceeds are hundred thousand rupees, then 20% of such excess shall not be allowed as deductIOn in computing the income chargeable under the head "profits and gains of business or profession".
It is necessary to bear in mind that there is no restriction whatsoever on the express which an assessee can incur on advertisement, publicity and sales promotion or funning and maintenance of aircraft and motor cars or payments made to hotels.
Section 37 (3-A) and (3-B)-Constitution of India, Article 19(1)-Publishing advertisement-Restriction on expenses on advertisements after a certain limit not transgress freedom of directly or remotely.
The contention of the petitioners that the tax or the fiscal measure under sub-section (3-A) and sub-section (3-D) was imposed for the purpose of curtailing or restricting or controlling commercial speech is not correct. The sub-section do not curtail or restrict the expenditure which an assessee desires to incur, nor restricts the contents of such advertisements but merely provides that in case the assessee exceeds a particular limit, then 20% of such excess shall not be allowed as deduction.
The provisions of sub-sections (3-A) and (3-B) of Section 37 of the Income-tax Act have no consequence to transgress the freedom of publishing advertisement either directly or even remotely. Unless the impugned provisions have direct Of inevitable consequence to transgress upon the freedom of speech, it is not possible to strike down the legislation as having that effect and operation.
Section 37 (3-A) and (3-D)-Constitution of India, Article 19 (1) (a)Advertisements-Expenses on-Placing restriction on after certain limit-It would be remote consequence and far-fetched if it was contended that it would effect revenue of newspapers decrease circulation and indirectly restrict freedom of speech.
While examining the complaint of restraint on advertisements it is not possible to equate the right to publish advertisements with freedom of speech guaranteed to newspapers: The complaint that the restriction on the advertiser in view of provisions of sub-section (3-A) of Section 37 of the Act would indirectly effect the revenue of the newspaper leading to the decrease in circulation and, therefore, impeaches on the freedom of speech guaranteed to the newspapers cannot be accepted.
The claim is far-fetched and of remote consequence as there is no restriction on the assessee to incure expenditure beyond Rs. 1,00,000/- on advertisements and consequently, the complaint that the freedom of press will be violated is imagery. The challenge to the provisions of sub-section (3-A) to (3-D) of Section 37 of the Act as introduced by Section 17(b) of the Finance Act, 1983 in without any merit and the petition must fail.
2. Petitioner No. 1 was incorporated as a public limited Company on April 29, 1978. Prior to its incorporation, the business was carried on by a partnership firm known as Belsara Hygiene Products. The partnership firm was engaged in the business of manufacture and sale of air purifiers, water filters, lavatory cleansers and mosquito repellant cream. In year 1978, the partnership firm entered the field of dental hygiene with the introduction of a new tooth paste called Promise. It is the claim of the petitioners that the tooth paste earned high acclaim and won many awards on account of quality and price. From year 1980, the business of the partnership firm was taken over by the Company. The petitioners claim that from year 1981, the sales of the tooth paste have gone up dramatically and the Company exports large quantities abroad and the earnings of the Company run into crores of Rupees. The Company spends large amounts on advertisement, publicity and sales promotion to compete with the tooth pastes marketed by multi-national manufacturers. The sale of tooth paste climbed up from Rs. 557 lacs in the year 1981 to Rs. 1077 lacs in the year 1983. The expenses on advertisements, promotion, etc. in respect of sale of tooth paste also jumped up from Rs. 116 lacs in the year 1981 to Rs. 138 lacs in the year 1983. For the year ending June 30, 1983, the Company incurred expenditure on advertisement, publicity and sales promotion totalling to Rs. 197 lacs and out of this amount Rs. 138 lacs were spent on advertisement in newspapers, films, television and radio.
3. The petitioners claim that expenditure incurred on advertisement, publicity and sales promotion was allowed as a deduction in the computation of its income subject to certain small disallowances under Rule 6-D of Income Tax Rules, 1962 made pursuant to section 37(3) of the Act. In the year 1978. Section 37 of the Act was amended by Finance Act, 1978 by inserting sub-sections (3-A) to (3-D). The effect of the amendment was to disallow a portion of the expenses incurred by an assessee on advertisement, publicity and sales promotion in excess of Rs. 40,000/-. Representations were made by various Associations and Small Scale Industries to the Central Board of Direct Taxes against these amended provisions and consequently, the amended provisions were withdrawn by the Finance Act, 1980 with effect from April 1, 1981.
The Parliament by Finance Act, 1983 again amended section 37 by inserting sub-sections (3-A) to (3-D) and, inter-alia, provided that 20% of the expenditure incurred on advertisement, publicity and sales promotion, running and maintenance of air-craft and motor cars and payments made to hotels would be disallowed if the expenditure exceeded Rs. 1,00,000/-. It is necessary to set out the amended provisions which are under challenge :
(3-A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3-B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head "Profits and gains of business or profession."
(3-B) The expenditure referred to in sub-section (3-A) is that incurred on-
(i) advertisement, publicity and sales promotion; or
(ii) running and maintenance of aircraft and motor cars; or
(iii) payments made to hotels.
Explanation :For the purposes of sub-sections (3-A) and (3-B),-
(a) the expenditur
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