Dolphin Laboratories Ltd. vs Commissioner of Income Tax

On an application u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessee on free samples and technical literature was hit by the provisions of Section 37(3A) of the Income Tax Act, 1961 ?"

The assessee is a manufacturer and seller of drugs and pharmaceutical products. The assessment year involved is 1985-86 for which the accounting year ended on June 30, 1984. During the previous year, the assessee has incurred expenditure on technical literature and samples and claimed an amount on that expenditure to the tune of Rs. 9,29,545 on literature and Rs. 12,41,343 on samples. The Income Tax Officer has applied the provisions of Section 37(3A) of the Act of 1961, and disallowed part of the expenditure claimed by the assessee, by applying the provision of Subsection (3A) of Section 37 of the Act of 1961.

At the outset learned counsel for the assessee submits that whether any expenditure on medical journal or literature can be disallowed under Subsection (3A) of Section 37 of the Act. This court has considered the similar issue in Griffen Laboratories Ltd. Vs. Commissioner of Income Tax, , and has taken the view that no such expenditure could be disallowed under Sub-section (3A) of Section 37. He further submits so far the expenditure on samples is concerned, the issue is now concluded by the Supreme Court in the case of Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Ltd. Vs. Commissioner of Income Tax, Karnataka-II Bangalore, wherein their Lordships have taken the view that in the case of expenditure on samples the provisions of subsection (3A) of Section 37 is applicable.

Considering the submission and aforesaid undisputed facts following the decision of the apex court in the case of Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Ltd. Vs. Commissioner of Income Tax, Karnataka-II Bangalore, , we answer the question on medical samples in the affirmative, i.e., in favour of the Revenue and against the assessee.

So far the expenditure on distribution on technical literature is concerned, following our view in the case of Griffen Laboratories Ltd. Vs. Commissioner of Income Tax, , we answer the question in the negative, i.e., in favour of the assessee and against the Revenue.

The reference application is accordingly disposed of.