SECTION 37(3) – EXPENDITURE ON ADVERTISEMENT/

MAINTENANCE OF GUEST HOUSE/TRAVELLING

Expenditure on advertisement in souvenirs – Allowance thereof as admissible deduction

1. Reference is invited to Board’s Circular No. 200, dated 28-6-1976 [Clarification 2] by which it was clarified that no distinction need be drawn between expenditure on advertisements in souvenirs and other types of advertisement.

2. A question has been raised as to whether an assessee can resort to publicity in more than one souvenir published by the same institution/organisation.  Souvenirs are one of the recognised media of publicity. A businessman can advertise in more than one newspaper or magazine and also in more than one issue of the same newspaper or magazine. Expenditure on such advertisements will qualify for deduction under section 37(3) read with rule 6B of the Income-tax Rules.  Similarly, if advertisements have been released in more than one souvenir published by the same organisation, deduction in respect of such publicity will be admissible provided aforesaid conditions are satisfied.

Circular : No. 203 [F.  No. 204/29/76-IT(A-II)], dated 16-7-1976.

JUDICIAL ANALYSIS

EXPLAINED IN  – The above circular was explained and applied in ITO v. J.K. Synthetics Ltd. [1986] 18 ITD 71 (Delhi), with the following observations :

“This circular issued by the CBDT makes it clear that advertise­ments inserted in souvenirs are recognised modes of publicity and that expenditure on such advertisements would qualify for deduc­tion under section 37(3) of the Act, read with rule 6B of the Income-tax Rules, 1962. Here there is no dispute that the condi­tions of rule 6B were fully satisfied. In the circumstances there should be no objection for the allowance of this amount as a deduction. We agree with the finding given by the Commissioner (Appeals) that this amount was not a donation made to a political party in the guise of advertisement. A circular given by the CBDT is binding on the department and particularly those circulars which are beneficial to the assessees. This was the view ex­pressed by the Supreme Court as early as in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 later repeated in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 and very recently in K.P. Verghese v. ITO [1981] 131 ITR 597. . . .” (p. 509

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