1. Only one issue is raised in both these appeals by the assessee, a private limited company, manufacturing drugs and chemicals. The issue is whether the provisions of Section 37(3A) of the Income-tax Act, 1961 ('the Act') would be applicable in respect of certain part of the expenditure incurred by the assessee in printing and distributing booklets which explain the products of the assessee.
2. For the assessment year 1979-80, the assessee-company had incurred under the head 'Advertisement' a total expenditure of Rs. 3,80,793. It is admitted by the company that an expenditure of Rs. 1,57,911 would be subject to Section 37(3A). But, the rest of the expenses was claimed to be only in respect of printing and distribution of certain pamphlets and booklets which would explain the nature of the products to the doctors and, therefore, they would be excluded from consideration under the provisions of Section 37(3B)(vii). The ITO and the Commissioner (Appeals) have rejected this claim.
3. In respect of the assessment year 1980-81, the total expenditure incurred by the company was Rs. 2,70,400. Out of this, it is admitted that an expenditure of Rs. 1,49,667 would be subject to Section 37(3A).
The ITO, as in the earlier year, included certain other expenditure and brought in for consideration a total expenditure of Rs. 2,39,452.
4. Shri S.P. Mehta for the assessee admitted that in respect of the amount which the assessee had already conceded before the ITO the provisions of Section 37(3A) would apply. But the balance of the expenditure debited under the head 'Advertisement', according to him, will not be expenditure in the nature of advertisement, publicity or sales promotion. Referring to some of the booklets printed and distributed by the company, he pointed out that these booklets explain to the doctors the experiments conducted on the application of the drug in the various laboratories, the findings of the laboratories, the discussions of the authorities and the recommendations of the company.
These are, according to him, not really advertisements at all. He then submitted that if at all they have to be considered as advertisements, they will be exempt under the provisions of Section 37(3B)(vii). He submitted that these booklets could be considered in reality as catalogues. The company, he submitted, was preparing a number of drugs and chemicals. If all these drugs and chemicals were to be put together in one book, it would become voluminous. But had that been done so, there would have been no difficulty for the department to accept that it was a catalogue. Merely because the company choose to break up the catalogue and print separate booklets in respect of each product, it cannot cease to be a catalogue. Alternatively, it was submitted that these should be considered as journals. In either case, the provisions of Section 37(3B) would be applicable, according to him. Shri Joy for the department, however, submitted that this expenditure could not be considered as an expenditure on catalogue or journals.
5. We have considered the facts of the case. We are unable to accept the submission of Shri Mehta that the provisions of Section 37(3A) will not be applicable. That section has been very widely worded. Any expenditure incurred by the assessee on advertisement, publicity and sales promotion will be caught in the net of this sub-section. It will be impossible to hold that the printed matter explaining the products of the assessee would not be considered under any of these heads. We are fully satisfied that the provisions of Sub-section (3A) would be applicable to the facts of the case.
6. We have next to see whether, although the provisions of Sub-section (3A) would be applicable, the assessee can still get away with the claim for deduction in view of the provisions of Sub-section (3B).
Sub-section (3B) reads as follows : Nothing contained in Sub-section (3A) shall apply in relation to any expenditure incurred by an assessee on- (vii) publication and distribution of journals, catalogues or price lists." In order to come within this exemption clause, the assessee must prove that the expenditure is one incurred on distribution of journals or catalogues. It is not the assessee's case that it is a price list. We have to see whether it could be considered as a catalogue. A catalogue is a systematic list of names, books, etc., according to the dictionary. In order to be considered as catalogue, there should be more than one article listed and that should be in a systematic way. The individual printed matters which deal with each product of the assessee, therefore, cannot be considered as a catalogue.
7. The next point to be considered is whether they could not be treated as journals. The expression 'journal' has the meaning of a daily register or diary ; a book containing a record of each day's transaction ; a newspaper published daily or otherwise ; a magazine ; the transactions of any society. In Ayyar's Law Lexicon, the meaning ascribed to the term 'journal' is, "(1) A day book showing transactions by merchants, miners, tradesmen, bankers, etc., in their business ; (2) a newspaper ; (3) the daily recordings of the proceedings of Parliament or a council". It will be seen from the above that a journal conveys the idea of recording something which has happened either in a Parliament or in the course of a business or in the country such events could be considered as news.
8. Now, Section 37(3A) deals with expenditure on advertisement and publicity. Sub-section (3B) refers to journals. Sub-section (3B) operates as a proviso to Sub-section (3A). Therefore, the 'journal' referred to in Sub-section (3B) would be a journal which has got an element of advertisement in it. We have found from the Dictionary and the Ayyar's Law Lexicon that a journal must have some sort of reporting of certain happenings. So, a journal which has an element of advertisement must necessarily be a report of the progress in respect of a product which is required to be advertised. That is exactly what is done in the booklets printed and distributed by the assessee. We have perused some of them which had been placed before us for inspection. We find from the records that these booklets had been placed before the ITO also for inspection. They described the research of the experiments conducted in the course of the tests on these chemicals and drugs and side effects and consequences noted by its applications. Each book draws its conclusion recording the advocacy of applying these products for the various diseases. It, therefore, carries out the twin object of an advertisement as well as a journal.
It informs the persons concerned as to the historical background of the product and at the same time it imparts information regarding the usefulness of the product. We are, therefore, satisfied that these printed matters could be considered as journals for the purpose of Section 37(3B).