1. The following question has been referred under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), for the opinion of this court at the instance of the Revenue :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the entire sum of Rs. 50,000 paid by the assessee towards advertisments in souvenirs to be brought out by the Congress Party at various district level outside Tamil Nadu should be allowed as an allowable expenditure ?'
2. The assessee is a private limited company carrying on finaning business. During the year of account relevant to the assessment year 1973-74, the assessee incurred an expenditure of Rs. 50,000 towards publication of advertisement in several issues of souvenirs brought out by the Congress Committees at various districts outside Tamil Nadu. In the course of the assessment proceedings, the assessee claimed that the expenditure of Rs. 50,000 should be subjected to tax treatment as an allowable expenditure in the souvenirs were published on the same day just before the elections and assessee had no business activity in the places where the souvenirs were published, the expenditure incurred by the assessee was more in the nature of a donation rather than expenditure incurred towards publication of advertisement expenses. On appeal by the assessee contending that the advertisements published by it in the souvenirs had as much publicity value as advertisements in the ordinary trade journals and other newspapers and, therefore, the expenditure on such advertisements should be treated as an allowable one, the AAC held that publicity element as a result of the advertisements in souvenirs was not the same as that which resulted from such publications in trade journals and dailies and that a part of the expenditure incurred should be disallowed as relating to purposes other than the business of the assessee. On this conclusion, the allowable expenditure was restricted to Rs. 25,000 was upheld. On further appeals to the Tribunal by the Revenue as well as the assessee in relation to the expenditure of Rs. 25,000 allowed and disallowed, respectively, the Tribunal found that the assessee was doing financing business on an extensive scale and that there was no material to show that the business of the assessee was such that it was not capable of being extended to states outside Tamil Nadu or that it would not be beneficial for the assessee to so extend its business beyond the boundaries of Tamil Nadu. Besides, the Tribunal examined two specimen advertisements in the sovenirs made available to it and concluded that having regard to the legitimate business needs of the assessee and the benefit that could be derived or would accrue to the assessee, the claim of the assessee should be allowed in full and dismissed the appeal preferred by the Revenue and allowed the appeal preferred by the assessee, as the requirements of rule 6B of the I.T. Rules were otherwise satisfied.
3. The learned counsel for the Revenue submitted that the assessee in this case had in fact and in reality made a donation to the Congress Party under the garb of incurring the expenditure on advertisements and that such a payment to made to a political party cannot be treated as an allowable expenditure in computing the income of the assessee. Reliance was also placed by the learned counsel upon the Statement of Objects and Reasons in the Bill for the introduction of the Taxation Laws(Amendment) Act, 1978, particularly in relation to the insertion of s. 37(2B) in the Act, for contending that payments made for advertisement in souvenirs and brochures and the like published by political parties are disguised donations made with the object of circumventing the ban on company donations and also securing a deduction in the computation of taxable profits and that therefore, the expenditure incurred by an assessee for purposes of advertisement in souvenirs and brochures should not be allowed as a deduction in computing the taxable [profits. Counsel also pointed out that an advertisement, as normally understood, should be for the benefit of a cross section of the society which is expected to see the advertisement, read and react to the same and since the souvenirs brought out by a political party at district levels would not serve this purpose, the amount expended by the assessee on such advertisements cannot be properly made the subject matter of allowable deduction.
4. On the other hand, the learned counsel for the assessee, while disputing that the expenditure incurred was a disguised donation to a political party, contended that the expenses in question for the publication of the advertisements in the souvenirs were incurred with a view to expand and promote the business of the assessee and that even though no direct or immediate benefit was reaped by the assessee or the assessee was not enable to earn more income immediately, yet, if the advertisements, even indirectly facilitated the carrying on of the business of assessee, the expenditure incurred thereon could be justified on the basis of commercial expediency and allowable as well and the motive for the incurring of the expenditure would be really not relevant. Attention was also drawn in this connection by the learned counsel for the assessee to Circular No. 200 dated June 28, 1976, for contending that in the matter of considering claims in respect of the expenditure on advertisements, no distinction need be drawn between the expenditure on advertisements in souvenirs and other types of advertisements and that the Department, at any rate, would be bound by the circular issued and cannot, therefore, be heard to contend that the expenses incurred by way of advertisement charges should be disallowed. Strong reliance was also placed by the learned counsel for the assessee in support of these submissions on the decisions in British Electrical & Pumps (P.) LTD. v. CIT : 106ITR620(Cal) and Varghese v. ITO : 131ITR597(SC) .
5. We have carefully considered the aforesaid submissions. Even at the outset, we may observe that in the course of the proceedings before the authorities, the Revenue did not take up the specific stand that the expenditure admittedly incurred by the assessee, ostensibly for advertisements, was really in the nature of a donation to a political party. Indeed, before the Tribunal, no attempt was made by the Revenue to sustain the disallowance of the expenditure incurred by the assessee on the ground that it was really in the nature of a donation to a political party. We are unable to agree that merely because the advertisements given by the assessee were published in the souvenirs released by a political party on the eve of elections, they ceased to be advertisements and the expenses incurred should be labelled as a disguised donation to a political party. That advertisements were released by the assessee and were also published in the souvenirs is not a matter of dispute. The timing of the publication of the advertisements in the souvenirs or the circumstance that the souvenirs were published by a political party would not, in out view, transform the expenditure incurred by the assessee for advertisements regarding its business into a donation to a political party. we cannot, therefore, either entertain or accept the contention of the counsel for the Revenue that the expenditure incurred by the assessee on the advertisements published in the souvenirs to political party, and, therefore, not allowable as expenditure in the computation of the income of the assessee.
6. Reliance placed by the Revenue on the Statement of Objects and Reasons in the Bill for the introduction of s. 13A and s. 37(2B) in the Act is also of no avail. No doubt, in a democratic set up, political parties are essential. Subjecting to tax the income of the political parties would effectively reduce their utilisable and employable funds and this would adversely affect their capacity to finance their activities from a legitimate source of income. With a view, therefore, to exempt from income-tax, the income received or derived by political parties from investment in movable or immovable properties and also by way of voluntary contributions, s. 13A was introduced and this was subject of course to the fulfilment of certain conditions mentioned therein. Further, with a view to prevent donations being made, not on considerations of commercial expediency, but, with the object of circumventing the ban on company donations under the clock of advertisements in souvenirs, brochures, etc., published by political parties and at the same time securing an allowance in the computation of the income, s. 37(2B) was conceived of. Contribution or donations to political parties have been consistently held to be not allowable expenditure primarily on the ground that its connections with business is rather remote and invariably no nexus between the expenditure and the business can be established. In those cases, the donors, who could not claim the contributions or donations as allowable items of expenditure in computing their income, might attempt to secure the benefit f such allowance or expenditure by relating it to an advertisement in any souvenir or brochure of the like published by the political party, It is this that has been prevented by the introduction of s. 37(2B) of the Act. Section 13A of the Act was inserted by the Taxation Laws (Amendment) Act, 1+978, with effect from April 1, 1979, while s. 37(2B), which was omitted by the Finance Act, 1976, with effect from April 1, 1977, was inserted again by the Taxation Laws (Amendment) Act, 1978, with effect from April 1, 1979. The assessment year with which we are concerned is 1973-74. Taking that into account and the object with which ss. 13A and 37(2B) have been introduced, on the facts of this case, where the publication of the advertisements in the souvenirs and the incurring of expenditure by the assessee in that regard during the accounting year relevant to assessment year 1973-74 are nor disputed, it cannot be stated that the expenditure incurred by the assessee should be treated as a disguised donation to a political part. We are, therefore, not inclined to accept the contention of the learned counsel for the Revenue.
7. We now proceed to consider the contention of the Revenue that even as advertisements, the publications in the souvenirs had not reached a cross section of the community and, therefore, they had failed as advertisements, in that they had not served any purpose and consequently, tisements, in that they had not served any purpose and consequently, the amount expended by the assessee cannot be allowed as a deduction. We gave to bear in mind that basically an advertisement in a souvenir brought out by an organisation or institution is nothing but a media through which those in business attempt to establish contact with customers with a view to push their products in the market or pursue more extensively their business activity. In that attempt, those who publish such advertisement may either succeed or fail. But that is really not the criterion while considering the question of the allowability of the expenses incurred in connection therewith as a deduction in the computation of income. Such advertisement, though they may not bring any direct or immediate benefit, it is not impossible that on seeing an advertisement, at some time or other, the advertiser may secure a new customer, and that would enable him or it to push his or its products in the market or to have a contract with the customer with a view to facilitate the carrying on of his or its business. Indeed, it cannot be gainsaid that souvenirs are one p the recognised media of publicity. Depending upon the capacity to meet the expenditure, a businessman can advertise in more than one newspaper or magazine or in several issues of the same newspaper or magazine. We do not see how the publication of the advertisement in more than one souvenir published by the same organisation or party will not qualify for the deduction, if the expenditure in that regard had been established to have been incurred. It is only with a view to communicate and spread far and wide the business activities of a particular advertiser that normally advertisement is resorted to. It may be that most often souvenirs are handle only on the occasion of their release and thereafter not given a second look. Even so, it is quite that some person in a remote corner lays his hands on the souvenir and then finds out that his business requirement will be met or satisfied by the company or the person who had inserted the advertisement. In that case, the purpose of the advertisement is fulfilled, though it may still be that really a large section of the community might not have come across the advertisement published in such souvenirs. Beside, there in an assumption in the argument of the Revenue that the souvenirs did not reach the society and that its members did not at all benefit by them for which there is no warrant at all. We are, therefore, unable to accept the argument that us advertisement, the publications made in the souvenirs have failed and the expenses have to be disallowed on this score.
8. We have already noticed that on the materials made available, the expenditure incurred by the assessee was not given as a bounty to be the political party which had brought our the souvenirs. The expenditure incurred by the assessee for the purpose of these advertisement might not have been voluntary, but it cannot be denied that it had been incurred for the benefit of the assessee as amounts expended for commercial expediency, which means and includes everything that serves to promote commerce and includes every means suitable to such an end. Earlier, it had been noticed that advertisements either in newspapers or magazines or souvenirs, etc., help companies and members for the business community to create and establish contact with the customers for the purpose of enabling the companies or the businessmen to promote their business and push the products manufactured by them in the market. Indeed, the motive with which the amounts are expended for inserting advertisement is really not material so long as the expenditure is incurred for the purpose of the business. Undoubtedly, there is an element of advertisement resulting in a greater awareness regarding the facilities available for finance extended by the assessee to customers of different kind as a result of the insertions in the souvenirs. It may be that in some cases such advertisements may be delayed benefit also directly or indirectly. In some cases, there may be no direct or indirect benefit at all. But so long as the propose of inserting the advertisements is covered by expediency, them, if such as expenditure indirectly facilitates the carrying on of the business, then it would be an expenditure laid out wholly and exclusively for the purpose 150 (SC), the Supreme Court observed :
'The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits. Its range is wide : it may take in not only the day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.'
9. In the light of the aforesaid statement of the law laid down by the Supreme Court, we may consider the circumstances under which and the reason for which the advertisements were released by the assessee. For the assessment year with which we are concerned, the assessed income of the assessee from its financing business was about 66 lakhs of rupees. That indicates the large volume of business carried on by the assessee on an extensive scale. Financing business knows no geographical limits, boundaries, borders or frontiers. The assessee thought that it would be more profitable and advantageous to it to further extend its business our side the State of Tamil Nadu. The advertisement in the souvenir had been examined by the Tribunal and indeed was also made available for our inspection. The advertisement brings our prominently the business activities of the assessee and the ready availability of finance for such purposes as business of the assessee outside the Tamilnadu State and it cannot be said in souvenirs published by organisations out side the State were not for business. We are, therefore, of the view that the amount of Rs. 50,000 expended by the assessee for advertisements in the souvenirs was done having been expended for commercial expediency. We may also point out that though such advertisements may not have the result of enabling assessee to earn income in that year or immediately, if it enables the assessee either to extend its business or to extend and promote its business even in the future, such an expenditure would be deductible. It is not necessary in such cases that there should be a profit in the very year in which the allowance is claimed or the expenditure is incurred. We are, therefore, of the view that the expenditure in this case incurred by the assessee would be one laid out or expended wholly or exclusively for the purpose of the business and would be eligible for a deduction under s. 37(1) of the Act. We many point that in British Electrical & Pumps (P.) Ltd. v. CIT : 106ITR620(Cal) , it has been held that expenditure incurred not with a view to a direct and immediate benefit for purposes of commercial expediency but in order indirectly to facility the carrying on of the business is expenditure laid out wholly and exclusively for purposes the trade, within the meaning of s. 37 of the Act and that the primary of motive in incurring the expenditure admissible to a deduction need not be directly earn income there by.
10. We have earlier referred to the Board Circular No. 200 dated June 28, 1976, which, it is nor disputed, would be applicable to the case of the assessee. Therein, the Board has adverted to the hardship caused to assessees as a result of disallowance of the part of the expenditure on advertisements in souvenirs and clarified that no distinction need be made regarding the expenditure on advertisements in souvenirs and other type may be allowed, if the conditions under rule 6B of the I.T. Rules, 1962, are fulfilled and there is evidence that the expenditure had been incurred. In this case, the authorities below were satisfied that the expenditure had been incurred by the assessee and that the conditions under rule 6B of the I.T. Rules, 1962, were also satisfied. This circular, as pointed out by the Supreme Court in Varghese v. ITO : 131ITR597(SC) , would be binding on the Revenue on administering or executing the provisions in the Act. Thus, on a consideration of the different facets of the question, we are of the view that the view that the Tribunal was right in its conclusion that the expenditure of Rs. 50,000 incurred by the assessee towards advertisement charges in souvenirs would be an allowable item of expenditure. We, therefore, answer the question in the affirmative and against the Revenue. The assessee will be entitled to the costs of this reference. Counsel's fee Rs. 500 (one set).