Sales promotion expenses under Section 37(3A) and 37(3B) of the Income Tax Act, 1961, are limited to expenses of the nature of advertisement and publicity, and do not include selling expenses incurred in the ordinary course of business.

Ajit K.Sengupta, J.

1. IN this reference made at the instance of the Revenue, the following question has been referred by the Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case and on a correct interpretation of Sections 37(3A) and 37(3B) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the expenses incurred on special discount and foreign tour expenses are not hit by the said Sections 37(3A) and 37(3B) of the said Act and thereby directing to delete the consequential addition made in the assessment ?"

2. THE assessee is engaged in carrying on the business of dealers of Beltek T.Vs. This reference relates to the income-tax assessment of the assessee for the assessment year 1984-85. In the course of the assessment proceedings, the Assessing Officer found that the assessee incurred an expenditure of Rs. 2,16,025 debited under the head "Special discount" and another sum of Rs. 1,65,236 debited under the head "Foreign tour expenses". THE Assessing Officer noticed that the assessee in terms of its Circular No. 26 of 1983 dated January 10, 1983, introduced a new sales promotion scheme under which special discount was allowed to its dealers for black and white T. V. sets lifted by them during the period January 1, 1983, to March 31, 1983, in the following manner :

Quantity of T. V. sets Special discount allowed

Rs.

11 to 20 sets 50 per set.

21 to 40 sets 75 per set.

41 sets and above 100 per set.

The aforesaid scheme was extended by the assessee for another three months, namely, April 1, 1983, to June 30, 1983, in terms of its circular No. 27 of 1983 dated April 1, 1983. The special discount so allowed during the relevant previous year to its dealers came to Rs. 2,16,025.

3. THE Assessing Officer also found that on June 29, 1983, the assessee issued another circular No. 28 of 1983 offering to its dealers introducing another scheme under which the assessee was to meet the travel expenses of its dealers for a pleasure trip to Kathmandu, Bangkok, Hongkong and Singapore in the following manner :

No.

T.V. sets

Travel to

1.

20 sets One person

Calcutta/Kathmandu/Calcutta

2.

?30 sets Two persons

-do-

3.

60 sets One person

Calcutta/Bangkok/Hongkong/Singapore/Calcutta

4.

100 sets Two persons

-do-

4. UNDER the aforesaid scheme, the assessee incurred an expenditure of Rs. 1,65,236 which was debited under the head "Foreign tour expenses". The Assessing Officer regarded the aforesaid two sums as sales promotion expenses within the meaning of Section 37(3A) read with Section 37(3B) of the Income-tax Act, 1961, and disallowed 20 per cent, thereof in so far as the aggregate expenditure falling under the said two sections exceeded Rs. 1,00,000. This action of the Assessing Officer was confirmed on appeal by the Commissioner of Income-tax (Appeals). On further appeal by the assessee to the Income-tax Appellate Tribunal, it was held by the Tribunal that none of these two items of expenses could be regarded as sales promotion expenses. The Tribunal noted that the special discount was allowed by the assessee on the sale of T. Vs. to its sub-dealers depending on the target of specified number of T. V. sets purchased by the sub-dealers during the relevant period as notified in the circulars. Similarly, the expenses on foreign tours were incurred by the assessee in connection with the foreign tour of the dealers in terms of the aforesaid circular dated June 29, 1983. The Tribunal noted that the assessee met the foreign tour expenses of the sub-dealers instead of granting them cash discount. The foreign tour was conducted in accordance with the said circular. The Tribunal felt that the meeting of foreign tour expenses by the assessee was nothing but a case of granting special discount to its sub-dealers. The Tribunal, therefore, held that neither the special discount in the aggregate sum of Rs. 2,16,325 nor the foreign tour expenses of Rs