The expenditure on commission paid to sales agents and advertisement agents is not covered by the provisions of Section 37(3a) read with Section 37(3b) of the Income-tax Act, 1961, as it does not fall within the expression "advertisement, publicity or sales promotion" employed in Section 37(3a) of the Act.

( 1 ) THE following question of law has been referred to this court by the Tribunal under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1984-85 : r. A. No. 279 (Cat) of 1990 :"whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the assessee's expenditure on commission paid to sales agents amounting to Rs. 1,57,65,878 and that paid to advertisement agents amounting to Rs. 1,53,88,321 are not covered by the provisions of Section 37 (3a) read with Section 37 (3b) of the Income-tax Act, 1961, in vacating the order of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 ?"

( 2 ) SHORTLY stated, the facts are that the assessee-company is the owner of a well-known newspaper "the Statesman". In its return for the assessment year 1984-85, it claimed deductions of Rs. 1,57,65,878 and Rs. 1,53,88,321 as commission paid to sales agents and advertisement agents, respectively. The above deductions were allowed to the assessee by the Assessing Officer in the assessment made by order dated January 28, 1986. The Commissioner, on examination of the record of the proceeding, was of the view that the above claims were hit by the provisions of Section 37 (3a) of the Act and twenty per cent. thereof should have been disallowed. He, accordingly, issued a show-cause notice asking the assessee-company to explain as to why the assessment made should not be revised as the same was erroneous in so far as it was prejudicial to the interests of the Revenue.

( 3 ) THE assessee, in its detailed reply dated February 25, 1988, objected to the revision of assessment. It was explained that the sum of Rs. 1,57,85,876 was paid to selling agents on sale of publication. The newspaper was sold almost entirely through selling agents outside the publishing centres of Calcutta and New Delhi and through hawkers in Calcutta and Delhi. The selling agents outside Calcutta and Delhi have to make arrangement for expeditious and efficient distribution of the newspaper through hawkers. The commission is paid at a uniform rate to all selling agents to compensate them for the service of distribution and hawking. The selling agents apart from the above service of distribution are required to pay for the newspapers supplied to them during a month within 25 days of the following month irrespective of whether or not they have been able to collect the relevant amounts from their clients or hawkers. The newspaper thus saved the expenditure of maintaining a debt collection cell for recovering debts from individual readers whose numbers are legion. The prompt payment also ensures regular flow of working capital. Likewise, hawkers in Calcutta and New Delhi are paid commission for distribution of copies of the newspaper in the houses of the readers and interests.

( 4 ) IN respect of advertising commission of Rs. 1,53,88,321 claimed as payment to advertising agents, the assessee explained that it was paid to agents on the business secured by them. The commission was paid monthly to advertising agents who were accredited to the Indian and Eastern Newspaper Society, which is the principal body officially representing the newspaper industry in India having over 500 newspaper establishments as its members of which the Statesman is one. The commission was paid at a uniform rate for the professional services which these agents rendered directly to newspapers or to the advertisers thus indirectly to newspapers since such services would, otherwise, have been rendered by the newspaper. These services help to facilitate the day-to-day operations of advertising business. The assessee also gave details of various jobs/services which the sales agents carry out for the newspaper. It further emphasised that in return for commission, the advertising agencies undertook to pay bills drawn by the newspaper within 60 days from the date of such bills irrespective of whether or not they