SECTION 37(3) – EXPENDITURE ON ADVERTISEMENT/
MAINTENANCE OF GUEST HOUSE/TRAVELLING

Expenditure on advertisement in souvenirs – Allowance thereof as admissible deduction

1. Attention is invited to Board’s Circular No. 19 [F. No. 9/20/69-IT(A-II)], dated 13-6-1969 [Clarification 3] on the above subject.

2. It has been represented to the Board that expenditure on advertisements in souvenirs is expenditure incurred wholly and exclusively for the purpose of business and as such is allowable as a deduction under section 37(1). Disallowance of a part of expenditure on advertisement in souvenirs by the Income-tax Officer on the ground that it is in the nature of donation has caused hardship to the assessees and has caused avoidable litigation.

3. The Board has re-examined the question in the light of the representations made.  It is clarified that no distinction need be drawn between expenditure on advertisements in souvenirs and other types of advertisements.  Claims in respect of expenditure on advertisements in souvenirs may be allowed if the conditions laid down in rule 6B of the Income-tax Rules are fulfilled and there is evidence that the expenditure has been incurred.

Circular : No. 200 [F.  No. 204/29/76-IT(A-II)], dated 28-6-1976.

JUDICIAL ANALYSIS

RELIED ON IN – The above circular was relied on in Century Spg. & Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660 (Bom.), with the following obser­vations :

“It is brought to our notice by Mr. Mehta, learned counsel for the assessee, that the Central Board of Direct Taxes by its Circular No. 200, dated June 28, 1976, clarified that no distinction need be drawn between expendi­ture on advertisements in souvenirs and other types of advertise­ments. It was also clarified that the position would remain so even if the advertisements were released more than once in a year by the same organisation. Dr. Balasubramanian makes no submission in view of the circular cited except that the advertisements in the souvenirs did not really serve the assessee’s business pur­pose. Be that as it may, the circulars of the Board are binding on the Income-tax authorities in view of section 119 of the Income-tax Act, 1961. That being so, we have to answer the addi­tional question No. 1 in the negative and in favour of the asses­see.” (p. 662)

See  also CIT  v.  Sundaram Finance (P.) Ltd. [1985] 154 ITR 564 (Mad.)

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