Illegal Detention of Vehicle & Seizure of Goods under Transportation by VAT Authorities – High Court directs for payment of Damages from erring officials to be collected from their personal account to check the arbitrary exercise of power.

It is a matter of common knowledge that the mobile squads of the VAT Departments daily intercept trucks & Lorries and often detain these transport vehicles and seize the transported goods on one pretext or the other. The accompanying documents are viewed with suspicion with an intention to point out deficiencies to enable these authorities to order detention of transport vehicles and seizure of goods. The Higher Authorities and the Appellate forums also do not pay heed to the woes of the assessees. In such cases can the High Court sit as a silent spectator? The High Courts have been reprimanding the erring officials and have, in past, imposed heavy fines on them to have a deterrent impact on their illegal working but ironically the instances of Harassment of the law abiding assessees on these counts is multiplying every day. The Allahabad High Court in a recent Landmark Judgment dated 19.12.2014 in Writ Tax No. 478 of 2014 in the case of Sandeep Bulk Carriers vs. State of U.P. & others has been critical of the highhandedness and apathy of the VAT Department and have ordered for Historic remedial measures.

The facts of the case are that petitioner is a transporter as well as owner of a tanker No. UP85V9636 who had loaded Bitumen in the aforesaid tanker from the Indian Oil Corporation, Mathura Refinery in the evening of 27.06.2014 for transportation to M/s Concast Infratech Ltd. Bhopal (M.P.). Thereafter some mechanical defect developed in the tanker which was repaired in the Chaudhari Works Shop, Delhi Bypass Road, Chaudhari Market, Mathura between 28.6.2014 to 30.6.2014. Thereafter the tanker proceeded in the night of 30.6.2014. The aforesaid tanker was intercepted near Farah by the Assistant Commissioner, Commercial Tax, Mobile Squad, Mathura and after about two hours a detention memo was issued on Ist July, 2014 at about 1 A.M. The tanker was detained by the said authority even though the bitumen loaded in it was found accompanied with all proper and genuine documents including Invoice of selling dealer M/s Indian Oil Corporation, Mathura, bilti and declaration Form 49 of the Madhya Pradesh Government issued by the purchasing dealer M/s Concast Infratech Ltd. Bhopal, Madhya Pradesh. The petitioner submitted objections on 2.7.2014 before the aforesaid authority bringing to his notice the facts that certain defect had developed in the tanker on 28.6.2016 and it could be repaired on 30th June, 2014. An affidavit of the driver of the tanker to the aforesaid effect was also filed. A show cause notice dated 2.7.2014 was issued by the Department which was replied by the petitioner on 4th July, 2014 in which he explained the matter, denied the entry of his tanker at Mahuwan Toll Plaza, requested to verify the alleged information of the Toll Plaza and demanded Compensation/Damages of Rs. 5,000/- per day for illegal detention of his tanker. However, the Department passed seizure order on 5th July, 2014 on the ground that between 28th June, 2014 to 30th June, 2014 the aforesaid tanker had crossed the toll plaza on 28.6.2014 while going from Mathura to Agra and on 29.6.2014 while returning from Agra to Mathura and, as such, it is evident that under the garb of the papers accompanied with the tanker, bitumen in question was being illegally transported and demanded cash security of Rs. 4,80,000/- for release of the goods. Aggrieved with this order the petitioner moved an application under the proviso to Section 48 (7) of the Act before the Joint Commissioner, Commercial Tax (SIB) and Mobile Squad, Mathura on 7.7.2014 giving complete details and annexing documentary evidences. It was specifically stated in the application by the petitioner that the information with the department from the toll plaza relates to merely last four digits of the registration number of some vehicle on the basis of which it cannot be said that the petitioner’s tanker crossed the toll plaza or the information received by the department relates to the tanker of the petitioner. He stated that in “UP85″ series there are twenty two vehicles registered in the office of the R.T.O. Mathura of which last four digits is “9636”. However, the Department rejected the application of the petitioner vide order dated 8th July, 2014 after recording a finding that vehicle No. 9636 is entered in the records of the toll plaza. On the aforesaid basis he drew inference that the tanker in question down loaded bitumen at some place and thereafter it came back and again loaded bitumen which was being illegally transported under the cover of the papers of earlier transaction with intent to evade payment of tax. The Departmental Officers did not verify the complete number of the vehicle with reference to the information received. Aggrieved with the aforesaid order, the petitioner preferred Second Appeal No. 223 of 2014 before the Commercial Tax Tribunal , Agra which was dismissed by order dated 16th July, 2014. Aggrieved with these orders the petitioner filed the present writ petition for release of the vehicle, goods and for payment of Damages of Rs. 5000/- per day for illegal detention of the Vehicle and illegal seizure of Bitumen. During the course of Hearing in the High Court, the Officials admitted that this tanker has not loaded Bitumen after 27.6.2014 from IOC Ltd., Mathura till it was detained. The only basis for seizing Bitumen loaded in the tanker in question is that as per information received, last four digits in numerical of registration number of tanker in question were common to a vehicle of similar type which has crossed Mahuwan Toll Plaza on 29/30.6.2014.The registration number of the tanker in question is U.P.-85 V-9636 as evident from the documents found by the authorities accompanying the goods. Photostat copies of two other invoices of Indian Oil Corporation Ltd., Mathura both dated 30th June, 2014 evidenced that Bitumen were loaded in two other tankers bearing registration number as U.P.-85 P-9636 and U.P.-81 F-9636. Thus, last four numerical digits of all these three tankers are common while the tankers are different and having different registration number. Thus, it was alleged by the Petitioner that the seizure is based on conjectures and surmises and based on no evidence but on mere suspicion only to harass the petitioner for their personal benefits and therefore damages @5000/- per day were demanded against the respondents for wholly arbitrary, illegal, unauthorized and baseless detention of his tanker since 30.6.2014 till it is released. The contention and the facts averred by the Petitions were not controverted by the Department. The Officials prayed for unconditional apology and gave an assurance that they would be careful in future.

The High Court was irked by the state of affairs existing in the State and openly reprimanded the erring officials. Seeing the stand of the High Court, the State Government assured the Court to come out with appropriate law / guidelines / instructions which may have a check on arbitrary exercise of power or negligent action of authorities of the Government so as to minimize the possibility of harassment of people after taking into consideration the view expressed by Hon’ble Supreme Court in the Case of N. Nagendra Rao and Company Vs. State of Andhra Pradesh 1994 (6) SCC 205 para 8, 9, 13 to 20, 25 and 29 and the Division Bench Judgment of the Allahabad Highs Court in the Case of Ram Singh and others Vs. State of U.P. and others 2000 U.P.T.C. 865 para 6, 7, 8 and 15 and also the judgment of Hon’ble Supreme Court in Lucknow Development Authority Vs. M.K. Gupta, A.I.R. 1994 SC 787 para 8 and 11. The State Government also committed that they shall soon come out with a Government Order to provide a remedy including compensation for wrong committed by Government Officers or Employees.

The Court was critical against the Joint Commissioner for not giving weight to the evidence provided by the Petitioner and the Tribunal also having acting mechanically. The Court held as under:

17.”Now the question arises that what amount of compensation may be awarded to the petitioner for illegal detention of the tanker in question. In the case Ram Singh and others (supra) Division Bench of this Court held in paragraph Nos. 7,13 and 15 as under:

“7. In the same decision the Supreme Court in para 11 observed as under:

“Today the issue thus is not only of award of compensation but who should bear the brunt. The concept of authority and power exercised by public functionaries has many dimensions. It has undergone tremendmous change with passage of time and change in socio-economic outlook. The authority empowered to function under a Statute while exercising power discharges public duty. It has to act to subserve general welfare and common good. In discharging this duty honestly and bonafide loss may accrue to any person. And he may claim compensation, which may in circumstances be payable. But where the duty is performed capriciously or the exercise of power results in harassment and agony then the responsibility to pay the loss determined should be whose? In a modern society no authority can arrogate to itself the power to act in a manner which is arbitrary. It is unfortunate that matters which require immediate attention linger on and the man in the (street is) made to run from one end to other with no result. The culture of window clearance appears to be totally dead. Even in ordinary matters a common man who has neither the political backing nor the financial strength to match the inaction in public oriented departments gets frustrated and it erodes the credibility in the system public administration, no doubt involves a vast amount of administrative discretion which shields the action of administrative authority. But where it is found that exercise of discretion was malafide and the complainant is entitled to compensation for mental and physical harassment then the office can no more claim to be under protective cover. When a citizen seeks to recover compensation from a public authority in respect of injuries suffered by him for capricious exercise of power and the national commission finds it duly proved then it has a statutory obligation to award the same? It was never more necessary than today when even social obligations are regulated by grant of statutory powers. The test of permissive form of grant are over. It is now imperative and implicit in the exercise of power that it should be form the sake of society. When the court directs payment of damages or compensation against the state, the ultimate sufferer is the common man. It is the tax payer’s money which is paid for in action of those who are entrusted under the act to discharge their duties in accordance with law. It is, therefore, necessary that the Commission when it is satisfied that a complainant is entitled to compensation for harassment or mental agony or oppression which finding of course should be recorded carefully or on material and convincing circumstances and not lightly then it should further direct the department concerned to pay the amount to the complainant from the public fund immediately but to recover the same from those who are found responsible for such unpardonable behaviour by dividing it proportionately where there are more than one functionaries.”

13. In our opinion the time has come when these illegalities by the authorities of detaining and seizing the must be strongly checked, otherwise the law will continue to be violated by such authorities.

15. We are inclined to grant compensation to the petitioners in these cases instead of relegating the petitioner to file Civil Suits as we want to stop the illegal practice of detaining and seizing of the vehicle by the U.P. Trade Tax Authorities. Everyone knows that a civil suit often takes ten years or more to decide and hence we are not relegating the petitioner to that remedy, however, Sri Pradeep Kumar Gupta, learned Additional Chief Standing Counsel requested that he will himself speak to the Commissioner, Trade Tax, U.P. and convey the displeasure of this Court and the Commissioner will ensure that these illegalities do not occur in future. We accordingly direct the Commissioner, Trade Tax the charge sheet the officials who had committed these illegalities and proceed Departmentally against them. The Commissioner shall also grant proper compensation to the petitioner in both these cases commensurate to the loss they have suffered preferably within two months from the date of production of a certified copy of this order in accordance with law. The Commissioner shall also issue instructions to all Trade Tax Authorities forthwith that such illegalities must stop immediately.”

19. In view of the above discussions the respondent No.1 is directed to determine the compensation within 30 days from today and to pay the amount of compensation to the petitioner by account payee bank draft within two weeks thereafter. The state government shall be at liberty to conduct an inquiry in the matter of illegal detention of the tanker and seizure of bitumen in question and may take action in accordance with law against the guilty officers/employees.

20. Now the last point that needs consideration is the undertaking of the State Government given through the learned Additional Advocate General and also of the Central Government as given by the learned Central Government counsel as recorded in paragraph 8 and 12 of this judgment. Learned Additional Advocate General has stated that State Government is considering to issue a government order to provide remedy including compensation for wrongs committed by government officers or employees. A statement has been made on behalf of the Central Government that the Department of Revenue, Ministry of Finance, Government of India, New Delhi is considering for making appropriate laws/guidelines/instructions which may have a check on the arbitrary exercise of power by authorities so as to minimise the possibility of harassment of transporters and dealers in general and to facilitate free flow of trade and commerce. Harassment and injury to persons particularly a person of poor class of society, by officers/employees of governments by their arbitrary, negligent and illegal actions can be effectively checked provided there is a law providing efficacious remedy for consequential liability of such officers/employees on one hand and on the other hand appropriate compensation to aggrieved person. Such a law/government order may also provide for speedy disposal of such matters. This shall also effectively check corruption. Learned Additional Advocate General for the State Government as well as the central Government Counsel have stated that the State Government as well as Central Government is considering to enact a law or to issue a government order for this purpose. Under the circumstances this Court hopes and trusts that the State Government as well as the Central Government shall consider the matter in the light of the undertakings as recorded in paras 8 and 12 above and may take appropriate decision/action in accordance with law preferably within three months from today.

21. In result the writ petition succeeds and is hereby allowed with cost of Rs. 20,000/- which the respondent No.1 shall pay to the petitioner within a month from today apart from compensation as directed above. 

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Whether conversion of capital asset such as Floor Space Index into stock-in-trade of business carried out by assessee is to be deemed as 'transfer' u/s 2(47)

AHMEDABAD, JAN 06, 2014: THE issue before the Bench is - Whether conversion of capital asset such as Floor Space Index into stock-in-trade of business carried out by assessee is to be deemed as 'transfer' u/s 2(47). And the answer is NO.

Facts of the case

The assessee is a partnership firm engaged in the business of real estate and also running a theatre. In the year 1971, the assessee acquired a piece of land through lease deed. The assessee constructed two theatres on the said land and started earning income by exhibiting films as well as rental income from some of the shops in the theatre building. Later on, the real estate business was started. In January, 1988, the assessee introduced FSI as stock-in-trade. The assessee passed accounting entry in the books of account by crediting Rs.1,10,25,000 to the account of capital reserve A/C" and debiting to the account of FSI Right A/c. The assessee had shown capital gain in its return of income for the AY 1993-94. However, the AO rejected the assessee’s claim. On appeal, CIT(A) allowed the appeal of the assessee. On further appeal, Tribunal had dismissed the said appeal.

On appeal, the HC held that,

++ the AO made out the case that it is an afterthought as the assessee had already got approval from the Surat Municipal Corpn. and started constructing the FSI from 8.2.75 when the sale of shop is made, the sale cannot be bifurcated into (i) sale of four walls and roof (ii) and sale of FSI area. The finding of AO is not correct as clause No.8 of the lease deed which is reproduced in para 4 of this order, clearly provides such right. Now question whether FSI is asset and amounts to transfer. In addition to clause No.8 of the lease deed, the FSI is an asset as per section 3(26) of general clauses. The relevant section is reproduced in para No.4 page 5 of this order. From these facts we find that FSI right in an asset. The second aspect to be examined is whether conversion of asset into SIT is "transfer". The relevant provision in IT Act is section 2(47) (iv) which is reproduced above in para 4 page 6 and 7. The taxability of such transaction is provided in section 45(2), reproduced above in in para 4 of this order. Section 45(2) provides for chargeability of capital gains arising in a case where a capital asset is converted by its owner into, or is treated as stock-in-trade of a business carried on by him. Sub-clause (iv) of section (2) 47 also provides that conversion of a capital asset into, or its treatment as stock-in-trade of business carried on by its owner shall be deemed as "transfer";

++ the combined reading these sections is that capital arising on conversion of a capital asset into SIT are charged to tax in the previous year in which such converted asset is actually sold or otherwise transferred but it never says that capital gain are chargeable to tax in the previous year in which the transfer by way of conversion takes place. Section 45(2) further provides that for the purpose of computing the capital gains, in such cases, the fair market value of the capital asset on the date on which it was converted into or treated as stock-in trade shall be deemed to be the full value of consideration received or accruing as a result of the transfer of the capital asset. Therefore, as per the provisions of section 45(2) which is the only applicable section, the year of transfer will be not the year in which capital asset (FSI Right) converted into stock, but the year in which same were sold to outside parties and also it will be to the extent of asset actually sold. The selling price and other parts of working of claim are not in dispute. The decisions cited by DR are distinguishable of facts. After considering the totality of the facts of the case and as discussion made above we find that the claim of the assessee was correctly allowed by the CIT(A). We accordingly confirm the order of CIT(A). In view of the above discussions, we are in complete agreement with the view taken by the Tribunal that FSI is an asset which is attached with the property and not with the business. Therefore, we are of the considered opinion that the Tribunal has not committed any error in dismissing the appeal of the revenue. For the foregoing reason, the present appeal deserves to be dismissed and the same is accordingly dismissed. The question raised in this appeal is answered in favour of the assessee and against the revenue. Therefore, we hold that the Tribunal has not committed any error in coming to the conclusion that "floor Space Index" is a capital asset.

 

No denial of depreciation when purchase bill wasn't in name of assessee if payment was made via cheque

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Advertisement expense cannot be disallowed merely because same were exorbitant

CIT Vs. Discovery Communication India (Delhi High Court  ), ITA 1297/2010, Date of Decision: 24.11.2014

Advertisement expenditure was incurred in terms of the license agreement granting the distribution rights to the assessee by the associated enterprise, Discovery Asia Inc. Under this agreement, the respondent­ assessee had procured right to distribute the signals of Discovery Channel and Animal Planet Channel and right to collect revenue arising or generated from distribution. Accordingly, the assessee had received subscription revenue of Rs 23.46 crores, Rs. 37.49 crores and Rs. 39.89 crores from the cable operators in the three assessment years. The agreement mandated and required that the assessee to develop and expand viewership of the Discovery Channel and Animal Planet Channel, which had started with a status of a “free to air channel” and made transition to a “pay channel”. Increased viewership obviously meant increased subscription revenue and earnings. It was manifest and self-evident that the assessee would have undertaken publicity, advertisement and incurred expenditure on increasing awareness and greater market retention, penetration and expansion. Thus, the finding of the appellate authorities was that advertisement expenditure was related to and had direct nexus with the licence agreement for distributorship and subscription fee collection.

There was a separate agreement between the respondent­assessee and associate enterprises under which the assessee had acted as an advertisement sale representative. As an advertisement sale representative, the assessee was entitled to 15% of the gross receipts as its income for the services rendered and performed by them. The balance 85% was transferred to the associated enterprise abroad.

The Assessing Officer‟s enigmatic and equivocal pronouncement that the entire advertisement revenue should have been retained as income is mere an incantation. The programmes were prepared and aired in India by the foreign associate enterprise, which had incurred expenditure or paid for the software and airing them. The finding that the entire or 100% expenditure on advertisement expenses were incurred for higher and increased advertisement revenue, is fanciful and reflects a spirit of creativity than realism. Unintendedly, the Assessing officer, as noticed below, impeached and transgressed into the domain of international transaction price fixation, without realising that the Transfer Pricing officer had accepted the price. The Assessing Officer, as noticed below under section 37(1) of the Act, cannot go into the question of reasonableness of advertisement or any other expense.

The Assessing Officer, thus, fallaciously and wrongly held that the entire expenditure, on advertisement, incurred by the assessee related only to the advertisement sales commission or receipt and was not incurred to increase subscription fee by promoting the two channels. Noticeable, the entire subscription fee was retained by the assessee and nothing was repatriated or paid to the associated enterprises abroad.

Section 37 (1) of the Act.

Under Section 37(1) of the Act any expenditure not being in the nature of expenditure described in Sections 30 to 36 of the Act, has to be allowed as a deduction in computing income chargeable under the head “Profit and Gains from Business and Profession”, if the following conditions are satisfied: (a) it is not capital expenditure; (b) it is not personal expenditure; and (c) it should be expended wholly and exclusively for the purpose of business.

The first two conditions are negative in nature, while the third condition or requirement is positive. It is not the case of the Revenue that the expenditure on advertisement was capital or personal in nature. The expression „expenditure‟denotes idea of spending or paying out. It is not the case of the Revenue that the expenditure was not incurred or was not genuine, but fictious. 10.2. The question raised is whether the expenditure was wholly and exclusively for the purpose of assessee‟s business. The words „wholly and exclusively‟though not synonymous, and are sufficiently wide, but are not restricted to expenditure solely incurred for the purpose of earning of profits. For an amount spent as an admissible expenditure under Section 37(1), the same should be for the purpose of business and not for the purpose of earning income. (see Sree Meenakshi Mills Ltd. vs. CIT (1967) 63 ITR 207 (SC) and CIT vs. Birla Spinning and Weavings Ltd. (1971) 82 ITR 166 (SC). In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), it has been 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 to day running of a business but also the rationalization of its administration and modernization 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 pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.”

Thus, any expenditure which is laid down for business which in the present case consisted of distribution of channels and earning of subscription revenue, advertisement agency commission etc. would be wholly and exclusively for the purpose of business and allowable.

Whether an expenditure was wholly and exclusively incurred or laid out for the purpose of business of profession, must be determined from the angle and as per the assessee s perspective and choice. It is subjective. What one assessee may want to incur, another may not like to incur the same or similar expenditure. The quantum may also differ and vary. Section 37(1) does not curtail or prevent an assessee from incurring an expenditure which he feels and wants to incur for the purpose of business. Expenditure incurred may be direct or may even indirectly benefit the business in form of increased turnover, better profit, growth etc. As long as the expenditure incurred is “wholly and exclusively’ for the purpose of business, the Assessing Officer cannot by applying of his own mind, disallow whole or a part of the expenditure. The Assessing Officer cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee. However, exception can be created by a statutory provision like Section 40A(2), when the revenue as per the statutory mandate may have jurisdiction to examine the issue of price/consideration. For incurring advertisement expenditure, in the relevant years, there were no statutory stipulations.

When expenditure is incurred for assessee‟s own business, the mere fact that the expenditure would inure or benefits a third party or the third party incidentally obtains some advantage, would not affect or distract from the finding that the expenditure was wholly and exclusively was for assessee‟s business. For example, a retail trader may advertise different products which may incidentally benefit the manufacturers, but this does not mean that advertisement expenditure fails to meet the requirement of “wholly and exclusively”. Law in this regard is well settled. Relevant would be to refer to authoritative pronouncement of the Supreme Court in CIT v. Chandulal Keshavlal & Co., Petlad, [1960] 38 ITR 601, observing: -

“In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party (Usher’s Wiltshire Brewery Ltd. v. Bruce [6 Tax Cas 399]. Another test is whether the transaction is properly entered into as a part of the assessee’s legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (Eastern Investments Ltd. v. CIT [(1951)SCR594]. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the present case the finding is that it was laid out for the purpose of the assessee’s business and there is evidence to support this finding.”

In CIT v. Royal Calcutta Turf Club, [1961] 41 ITR 414, Supreme court followed the earlier judgment in Chandulal Keshavlal(supra) to hold : -

“The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case. The business of the respondent was to run race meetings on a commercial scale for which it is necessary to have races of as high an order as possible. For the popularity of the races run by the respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable. It was for this purpose that the respondent started the school for training Indian jockeys   Therefore any expenditure which was incurred for preventing the extinction of the respondent’s business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction. This finds support from decided cases. In CIT v. Chandulal Keshavlal & Co. [(1951) SCR 594 ] this Court held that in order to justify a deduction the disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for the assessee’s business; and if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment also enures to the benefit of a third party.”

In Sassoon J. David and Co Pvt Ltd, Bombay v. CIT, Bombay, (1979) 3 SCC 524, the Supreme Court has held: -

“21. The next contention urged on behalf of the Department was that since Davids and Tatas were indirectly benefited by the retrenchment of the services of the employees of the Company and payment of compensation to them and since there was no necessity to retrench the services of all the employees, the expenditure in question could not be treated as an expenditure laid out wholly and exclusively for business purposes of the Company. It has to be observed here that the expression “wholly and exclusively” used in Section 1 0(2)(xv) of the Act does not mean “necessarily”. Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under Section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of Section 37 of the Income Tax Act, 1961 which corresponds to Section 1 0(2)(xv) of the Act. An attempt was made in the Income Tax Bill of 1961 to lay down the ^„necessity^‟ of the expenditure as a condition for claiming deduction under Section 37. Section 37(1) in the Bill read “any expenditure … laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed ….” The introduction of the word “necessarily” in the above section resulted in public protest. Consequently when Section 37 was finally enacted into law, the word ^„necessarily^‟ came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under Section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law.”

As per the findings recorded by the Tribunal and the Commissioner of Income Tax (Appeals), the respondent assessee was engaged in the business of distribution of television channels and had retained 100% of the subscription As per the agreement between the respondent assessee and the associated enterprise, it was the obligation and the duty of the respondent assessee to advertise and promote the channels. Similarly, the assessing was acting as a selling agent for advertisements to be aired on the channels. It was entitled to retain 15% of the gross-receipts as income and pass on or transfer 85% of the gross receipts to the foreign enterprises.

Thus, one of the functions being performed by the assessee was to advertise and promote the channels and to earn subscription revenue. Another function was to secure/procure advertisements. The assessee earned 15% commission for the last mentioned function. The assessee was earning revenue in view of the said functions being performed. Expenditure incurred on advertisement was clearly relateable and laid out for the purpose of business of the respondent assessee and was not extraneous or unconnected with the same. Consequently, it could not have been disallowed as was done by the Assessing Officer on the ground that it was not laid or incurred wholly or exclusively for the purpose of business.