1. The effective ground in this departmental appeal relating to the assessee's assessment for the assessment year 1980-81 is against the deletion of the disallowance of Rs. 2,21,839 made out of advertisement expenses by the ITO under Section 37(3A) of the Income-tax Act, 1961 ('the Act'). The assessee, an individual, is a film producer. During the year under appeal, he has released two pictures styled 'Kalapathar' and 'Noori'. Finding that the assessee had incurred expenditure of Rs. 14,78,920 on advertisement on the above two pictures, the ITO has, by applying the provisions of Section 37(3A), disallowed a sum of Rs. 2,21,839 out of it being 15 per cent of the total expenditure. The assessee's contention that his case was covered by the provisions of Section 37(3D) and that, therefore, the disallowance was not justified has been rejected by the ITO who has also rejected the assessee's alternative claim that in case a disallowance is at all justified, it would have to be restricted to Rs. 1,59,640 as the amount to be processed for disallowance under Section 37(3A) was Rs. 10,64,261 and not Rs. 14,78,920.
2. It was submitted before the Commissioner (Appeals) that the assessee had set up an 'industrial undertaking' for the purpose of producing films and that each movie amounted to a fresh undertaking so much so that the provisions of Section 37(3D) were applicable in this case, This submission has been rejected by the Commissioner (Appeals) who has held that the assessee is an established film producer and it cannot be accepted that he has to set up a fresh industrial undertaking at the time of starting of a new picture. However, the Commissioner (Appeals) accepted the assessee's alternative contention, namely, that the assessee having started production of these two films in the year 1978, the provisions of Sub-section (3A) which were introduced in the Act with effect from 1-4-1979 were not applicable in this case.
3. Aggrieved by the order of the Commissioner (Appeals), the department has come up in appeal. It is submitted that the provisions of Section 37(3A) have been inserted by the Finance Act, 1978, with effect from 1-4-1979 which means for the assessment year 1979-80 onwards. According to the departmental representative, the fact that the assessee started production of his pictures in 1978 was not of any consequence. The law in this regard is stated to be well settled. Having himself held that the provisions of Section 37(3D) were not applicable in this case, the departmental representative argued that the Commissioner (Appeals) was not justified in deleting the disallowance of Rs. 2,21,839.
4. On the other hand, Shri V.H. Patil, the learned counsel for the assessee, submitted that there is a dichotomy between the assessee and the industrial undertaking set up by him. While the assessee has, no doubt, set up his business as a film producer, for each movie he takes up, he has to set up a separate industrial undertaking in the sense he has to select the story, give a name to the picture, get the same registered, appoint a director, choose a hero and a heroine, music director and so on and so forth. All these persons may or may not be common to all his films. Assuming that some of them are common, the agreement with each such person is entered specifically for a particular movie. In other words, the submission is that in the case of a film producer each movie requires a separate industrial set up and the movie is, of course, a separate product. Alternatively, Shri Patil submitted that the use of the expression 'such articles' in Sub-section (3D) of Section 37 makes it clear that emphasis is on the articles produced and not on the industrial undertaking. In this context, he invited our attention to the fact that unlike Section 80J of the Act, the industrial undertaking need not be new. Reliance for this purpose is placed on the decision of the Bombay High Court in the case of CIT v. Tata Locomotive & Engg. Co. Ltd.  68 ITR 325 where it was held that the assessee was not a new industrial undertaking even though the assessee had started manufacturing the same articles which it was assembling earlier because the word 'such' was not used before the word 'articles' in that Section. It is urged that the above decision indirectly lays down that where the word 'such' is used before the word 'articles', the articles assume importance.
5. In reply, the departmental representative invited our attention to the expression 'where the assessee sets up an industrial undertaking for the purpose . . . producing articles . . .' used in Section 37(3D).
It is stated that the assessee may have started new films but the industrial undertaking had been set up long back and since the relief envisaged in Sub-section (3D) is available to the assessee for three years only, the Sub-section has no application in the case of the assessee. There is also no scope for holding that each film constitutes a separate industrial undertaking, though it may constitute a separate production.
6. Having heard the parties and after going through the material on record, we find that the assessee is a well established producer. He does not own a studio. As a producer, his business is to produce movies/ pictures. Whenever, he decides to take up a movie for production, he selects a story, gives a name or title to it, gets the name registered, appoints a director, chooses a hero and a heroine, other actors and actresses, music director, play-back singers, soon and so forth. He also decides about the studio where the shootings will be done as also the laboratory where the film will be developed and edited. We are given to understand that separate accounts are maintained for each movie/picture so produced. Though sometimes some of the personel, studio or the laboratory are common to more than one movie produced by him, it is not necessary that it has to be so. In any event, the agreements are specific for each movie/picture. These are the facts common to almost all the producers and, therefore, there cannot, possibly, be any dispute about them.
7. Section 37(3A) admittedly, came to be inserted in the Act by the Finance Act, 1978, with effect from 1-4-1979. Therefore, in view of the settled legal position, namely, the Act as it stands amended on the first day of April in the financial year must apply to the assessment for that year, we have no difficulty in holding that the Commissioner (Appeals) was not justified in his conclusion that the provisions of Section 37(3A) are not applicable in this case on the ground that the production of the two pictures had started in the year 1978. To our mind, what is pertinent for deciding the applicability of a provision is not the previous year but the assessment year. Accordingly, we accept the departmental representative's submission that the provisions of Section 37(3A) are applicable in this case.
However, the other question, namely, whether the provisions of Section 37(3D) similarly inserted are also applicable in this case so as to take the case out of the purview of Section 37(3A), in our opinion, requires careful consideration. For this purpose, it is desirable to refer to the provisions of Section 37 which read as under : (1) Any expenditure not being expenditure of the nature described in Sections 30 to 36 and Section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'.** ** ** (3D) In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in Sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assessee, for the purposes of the business of such undertaking, in the previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year.
There is evidently a dichotomy between the assessee and the industrial undertaking to be set up by the assessee. The term 'industrial undertaking' has been used in this Section as well as in several other Sections of the Act but there is no definition except the one for the purpose of Section 33B of the Act. The law is fairly settled in this regard. In the absence of a statutory definition, the Courts have to adopt the meaning of the expression as understood in common parlance.
In common parlance, industrial undertaking would mean a new set up, paraphernalia or organization for a particular purpose. We have already indicated how many things a producer requires for taking up the venture, like producing a movie. It is not the requirement of Section 37(3D) that such an industrial undertaking should be new. The requirement is that it should be an industrial undertaking set up for manufacturing or producing any articles. Having regard to this aspect, we are inclined to hold that each movie in the case of a producer is a separate and an independent industrial undertaking and, therefore, the provisions of Section 37(3D) are applicable and not those of Section 37(3A).
8. It may not be out of place to mention that our above interpretation is also justified on equitable grounds. The reason behind the provisions of Section 37(3D) appears to be that the advertisement expenditure on a new product including the movie/picture in the initial stages should be allowed in full as that is a bare necessity for the carrying on of the business while after a few years the necessity may or may not be so much. In the case of a film producer, the movie/picture is a new product which requires a separate establishment and new advertising machinery. No doubt, the banner under which it is produced has also some advertising value but the main thing is the picture or the cast and not the banner.
9. In the result, the departmental appeal is dismissed though for different reasons.