COMMISSIONER OF INCOME TAX Vs. ALUMINIUM INDUSTRIES LIMITED

JUDGEMENT

(1.) THE Commissioner of Income -tax, Trivandrum, in this petition filed under Section 256(2) of the Income -tax Act, 1961, seeks a direction to the Income -tax Appellate Tribunal, Cochin Bench, to refer the following questions of law for decision of this court :

(2.) THE assessee which is a public limited company engaged in the manufacture of aluminium conductors, steel wires, machines, circuit breaker, etc., claimed deduction of an amount of Rs. 2,38,689 as business expenditure under the head of 'advertisement' for the assessment year 1982 -83. The above amount was expended by the assessee in connection with the inauguration ceremony, when its 'relay' project was commissioned in January, 1982. The assessing authority rejected the claim on the ground that the assessee had claimed a sum of Rs. 11,52,409 under the head 'advertisement' which included expenses of every conceivable item and, therefore, the amount of Rs. 2,38,689 incurred on the inauguration of the project was inordinately high and not dictated by commercial expediency. The assessee's appeal was allowed by the Commissioner of Income -tax (Appeals) following a decision of the Bombay High Court in CIT v. Nirlon Synthetic Fibres and Chemicals Ltd. : [1982]137ITR1(Bom) . The above finding was affirmed by the Income -tax Appellate Tribunal. On the facts, the Tribunal found that the assessee had actually incurred the expenses as claimed. The Tribunal took the view that the expenditure so incurred was in connection with the assessee's business and, therefore, an allowable deduction.

(3.) WE find no merit in the contention raised on behalf of the Revenue that the amount spent by the assessee in connection with the inaugural function of its new project is in the nature of capital expenditure as it was incurred not after the commissioning of the new unit. The assessee was already having manufacturing units and the 'relay' project which is inaugurated in January, 1982, was one in expansion of its existing business. We are, therefore, of the view that merely because the expenditure was incurred not after the commissioning of the new unit it would not make it any the less an expenditure coming under Section 37(1) if it satisfies all the other conditions. In Hindustan Commercial Bank. Ltd., In re : [1952]21ITR353(All) , the Allahabad High Court had occasion to consider the question whether an expenditure incurred in connection with the starting of a new branch - -the nature of the business remaining the same - -is an expenditure in the nature of capital expenditure or revenue expenditure. It was held that where an assessee does not start a new line of business and where for the purpose of extending the business new branches are opened and certain expenses are incurred by way of advertisement, etc., the expenditure cannot be treated as one bringing in an advantage for the enduring benefit of the trade and, therefore, capital expenditure. We are in respectful agreement with the above view.