1. This appeal by the assessee arises from the income-tax assessment in respect of the assessment year 1979-80. The ground of appeal relates to the disallowance under Section 37(3A) of the Income-tax Act, 1961 ('the Act'). The question that falls for consideration is whether the assessee is entitled to a basic allowance of Rs. 40,000 in the computation of the disallowance on the aggregate expenditure on advertisement, publicity and sales promotion incurred in India where such aggregate expenditure exceeds Rs. 40,000.
2. The assessee is a registered firm engaged in the business of film distribution, receiving commission based on collections of the pictures. During the previous year for the assessment year 1979-80, the assessee incurred expenditure on advertisement and publicity for purposes of its business. The aggregate expenditure exceeded half per cent of the gross receipts. The ITO made a disallowance of Rs. 29,002 working out the adjusted expenditure and computing 15 per cent thereof as the disallowance.
3. On appeal by the assessee, the AAC determined the adjusted expenditure at Rs. 53,028 as against Rs. 1,93,276 determined by the ITO. The AAC, however, rejected the contention of the assessee that a basic allowance of Rs. 40,000 is to be allowed in restricting the allowance under the provisions of Sub-section (3A) of Section 37 and sustained the disallowance at Rs. 7,953, being 15 per cent of the adjusted expenditure of Rs. 53,028.
4. Being aggrieved by the order of the AAC the assessee is in further appeal before the Tribunal reiterating the claim. There is no controversy on the determination of the adjusted expenditure.
Sub-section (3A), inserted in Section 37 by the Finance Act, 1978 with effect from 1-4-1979 provided thus : (3A) Notwithstanding anything contained in Sub-section (1) but without prejudice to the provisions of Sub-section (3), where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely :- (iii) where such aggregate expenditure exceeds 1/2 per cent of the turnover, as the case may be, gross receipts of the business or profession 15 per cent of the adjusted expenditure (a) 'adjusted expenditure' means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under Sub-section (1) and as further reduced by so much of such expenditure as is not allowed under Sub-section (3) ; (b) 'turnover' and 'gross receipts' mean turnover or gross receipts, as the case may be, as reduced by any discount or rebate allowed by the assessee.
This provision restricting the business expenditure on advertisement, etc., was introduced for the first time in the assessment year 1979-80 and was in the statute book only for the two assessment years 1979-80 and 1980-81. The contention on behalf of the assessee is that the expression 'such aggregate expenditure' occurring in the clause 'so much of such aggregate expenditure as is equal to' means the aggregate expenditure in excess of Rs. 40,000 and, therefore, the disallowance to be made is only a percentage of that excess over Rs. 40,000, the assessee being thereby entitled to a basic allowance of Rs. 40,000. It is said that the literal interpretation of the provisions would produce a manifestly absurd and anomalous result and the clause has, therefore, to be reasonably construed to avoid such results. It is pointed out that in a case where the aggregate expenditure is only Rs. 40,000 the entire amount is to be allowed as business expenditure subject to the provisions in Sub-section (3). Where the expenditure is one rupee more, i.e., Rs. 40,001, the disallowance of Rs. 6,000 would have to be made, on a literal construction of the provision and such a result, it is stated, could not have been intended by the Legislature. Reliance for the proposition that the clause requires to be reasonably construed is placed on the decision of the Supreme Court in K.P. Varghese v. ITO  131 ITR 597. In that case the Supreme Court held that if in construing a statute any absurdity or mischief results that construction which would avoid absurdity or mischief must be preferred rather than literal interpretation which would produce a manifestly absurd and unjust result. According to the assessee's representative, the word 'such' in the expression 'such aggregate expenditure' refers to the aggregate expenditure in excess of Rs. 40,000. Mr. Rangamani referred to the interpretation of the word 'such' in Venkataramiya's Law Lexicon at page 1612, Mukherjee's Law Lexicon at page 568 and Strout's Judicial Dictionary, page 2662 and stated that 'such' generally refers to its last antecedents and indicates something just before mentioned and in this provision it refers to the 'aggregate' mentioned in the preceding clause, i.e., aggregate in excess of Rs. 40,000. It is submitted that the Commissioner (Appeals) in the case of S. Veeriah Reddiar and Bheema & Sons had accepted the contention on behalf of the assessees that the disallowance under Section 37(3A) is to be made on the amount in excess of Rs. 40,000 only. The assessee's representative adopting the reasoning of the Commissioner (Appeals) in those cases maintained that the words 'such aggregate' in the sub-section refers to the aggregate expenditure that exceeds Rs. 40,000 being the expenditure referred to in the immediate proximate phrase as far as the word 'such' is concerned; 5. The departmental representative pointed out that the view held by the Commissioner (Appeals) is not accepted by the department. He maintained that the contention advanced on behalf of the assessee has been rightly rejected by the AAC. A plain reading of the provision of Sub-section (3A), according to the departmental representative, is that 'such' expenditure means aggregate expenditure on advertisement, etc.
and not the amount in excess of Rs. 40,000 and that when the total expenditure exceeds Rs. 40,000, a percentage of the total expenditure as prescribed under the sub-section should be wholly disallowed. The argument is that the expression 'such aggregate expenditure' cannot be read as aggregate expenditure in excess of Rs. 40,000 without doing violence to the language of the section and such construction is against the well settled principles of interpretation of statutes.
According to the revenue the language of the statute is plain and the fact that the consequence on giving effect to it may lead to certain results is not a factor to be taken note of in interpreting the provision. It is, therefore, maintained that the disallowance sustained by the AAC requires no modification.
6. Thus, the point that falls for determination in this appeal is the true construction of Sub-section (3A) of Section 37. In the light of the well settled principles on the interpretation of statutes and the plain language employed in the section, we find it difficult to accept the construction sought to be placed by the assessee on Sub-section (3A). In order to appreciate the contention, we may briefly refer to the history of the legislation. Up to 31-3-1964, there was no specific provision for allowance or disallowance of expenditure incurred by a businessman on advertisement, etc. The allowability of each such expenditure was to be considered on the phraseology of the residuary provisions of Section 37(1). The Finance Act, 1964 introduced a new Sub-section (3) in Section 37 providing that any such expenditure incurred after 31-3-1964 should be allowed only to the extent of and subject to such limits and/or conditions as may be prescribed. The limits referred to in Section 37(3) was, however, made in Rule 6B which was framed with effect from 10-8-1966. Under the Finance Act, 1978 the entire scheme of allowance and disallowance on advertisement, publicity and sales promotion in India was revised by inserting Sub-sections (3A), (3B), (3C) and (3D) in Section 37 with effect from 1-4-1979, i.e., for and from assessment year 1979-80. The new scheme has left unaffected such expenditure in India if it does not exceed in aggregate Rs. 40,000 in an accounting year. The proposal to make a provision for the disallowance of a part of the expenditure, in the computation of taxable profit was made in order to place a curb on extravagant and socially wasteful expenditure on advertisement, publicity and sales promotion. The provision applied only in relation to expenditure on advertisement, etc., in India. Although the provision applied to all categories of taxpayers carrying on any business or profession no disallowance would be made in the case where the aggregate amount of such expenditure does not exceed Rs. 40,000. It was found that in view of the exemptions provided the restriction hurt only the small and medium businessmen. It was accordingly proposed to repeal the provisions relating to the disallowance of a specific percentage of the expenditure and Sub-section (3A) was deleted with effect from 1-4-1981.
Thus, the provision existed in the statute only for the two assessment years 1979-80 and 1980-81.
7. No doubt the statute did not provide for any marginal relief. That does not mean that the provision results in absurdity or anomaly.
Sub-section (3A) was a measure for placing a curb on extravagant expenses in business and profession. It only deals with the case of an assessee who incurs expenditure in India on advertisement, publicity and sales promotion exceeding Rs. 40,000 in the aggregate. The section does not apply to the case of an assessee who holds such expenditure below the limit. In that case the existing provisions in Sub-section (3) apply. Therefore, there is no anomaly in the new provision. It is well settled that there is no equity about tax. If the language of the statute is clear and unambiguous and if two interpretations are not reasonably possible, it would be wrong to discard the plain meaning of the words used in order to make a possible interpretation. The language of Sub-section (3A) is plain and the proper course is to apply the normal rule of construction so as to give each word the meaning appropriate to it in its context. We, thus, find no scope for applying the principles stated by the Supreme Court in K.P. Varghese's case (supra) in the interpretation of Section 37(3 A).
8. Section 37(3 A) provides for a disallowance of a certain percentage of the expenditure incurred in India, when the aggregate expenditure on advertisement, publicity and sales promotion exceeds Rs. 40,000. The calculation of disallowance is to be made with reference to the gross receipt as well as the adjusted expenditure. These terms are defined in the section itself. The Explanation giving the meaning of 'adjusted expenditure' makes it clear that in working out the disallowance no basic allowance is called for. It is not the percentage of the amount by which aggregate expendi ture exceeds Rs. 40,000 that is to be disallowed. The disallowance should be a specified percentage of the adjusted expenditure which in the context means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India, reduced by so much of such expenditure as is not allowed under Section 37(1) and 37(3).
9. Thus construing, the expression 'such aggregate expenditure' in the sub-section in its ordinary and grammatical sense 'such aggregate' refers to the total expenditure on advertisement, etc., in the case of an assessee, who incurs such expenditure in the aggregate exceeding Rs. 40,000. The word 'such' generally refers to its last antecedent. When the word 'such' is used before a noun in the latter part of a sentence the proper construction is to hold that the same noun is being used after the word 'such' with all the characteristics which might have been indicated earlier in the same sentence. Therefore, 'such aggregate expenditure' in the latter part of the sub-section refers to the aggregate expenditure incurred by the assessee on advertisement, etc., at a figure exceeding Rs. 40,000, this being the characteristic of the expenditure indicated in the earlier part of the sentence. The expression cannot mean expenditure in excess of Rs. 40,000 because there is no reference to expenditure in excess of Rs. 40,000 in the earlier part of the sentence. Expenditure exceeding Rs. 40,000 is not the same as expenditure in excess of Rs. 40,000. To interpret the expression 'such aggregate expenditure' as the aggregate expenditure in excess of Rs. 40,000 is in effect to rewrite the clause, discarding the plain meaning of the words used. Such a construction is not possible without straining the language used by the Legislature. Where the expenditure incurred by an assessee exceeds Rs. 40,000 it is a case of the assessee incurring expenditure exceeding Rs. 40,000 and such expenditure is the total expenditure and not the amount by which the expenditure exceeds Rs. 40,000. This is how the provision in Sub-section (3A) has to be understood.
10. This position is also clear from the following illustration furnished in Chaturvedi & Pithisaria's Income-tax Rulings, Vol. III : 'A', a trader, spends an aggregate amount of Rs. 1,00,000 on advertisement, etc., in the accounting year relevant to the assessment year 1980-81.
The balance sum of Rs. 75,000 is the adjusted expenditure. As the aggregate expenditure of Rs. 1,00,000 exceeds half per cent of the turnover of Rs. 40,00,000, 15 per cent of Rs. 75,000, i.e., Rs. 11,250, shall further be disallowed under Section 37(3A).... (p. 91) 11. Thus, the plain language of Sub-section (3A) imports the meaning that the percentage of disallowance is in respect of the aggregate expenditure incurred by the assessee and in the manner provided thereunder. We, therefore, hold that under Sub-section (3A) of Section 37, in restricting the allowance on the aggregate expenditure on advertisement, publicity and sales promotion incurred in India, the assessee is not entitled to any basic allowance of Rs. 40,000 and for the purpose of disallowance the total expenditure incurred by the assessee has to be taken into account. In this view, we sustain the order of the AAC. The appeal is accordingly dismissed.