DOLLAR CO PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE petitioner is a company carrying on the business of manufacture and sale of certain specified medicinal products. THE main products of the petitioner-company are "Hedensa" and "Eichensa". According to the petitioner, these products cannot be sold unless consumer awareness is created through advertisements and publicity. On an average, the petitioner-company is said to be spending 20 per cent. of the value of the net sales in a year towards the advertisement. Section 37(3) of the Income-tax Act, 1961, and rule 6B of the Income-tax Rules, prescribe conditions as to extent to which the expenditure on advertisements shall be allowed while computing the income chargeable under the head "Profits and gains of business or profession". With effect from April 1, 1979, sub-sections (3A), (3B), (3C) and (3D) were introduced in section 37 of the Act and they provided for disallowance of part of the expenditure on advertisements. However, with effect from April 1, 1981, those sub-sections were withdrawn. Again, with effect from April 1, 1984, the very same sub-sections have been introduced in a modified manner. Since the validity of these sub-sections is challenged in this writ petition, it would be convenient to extract those sub-sections :

(2.) IN substance, sub-section (3A) of section 37 of the Act says that where the expenditure of the aggregate expenditure on any of the items specified in sub-section (3B) exceeds Rs. 1 lakh, 20 per cent. of the said excess shall not be allowed as a deduction in computing the income chargeable under the head "Profits and gains of business or profession". The sub-sections are challenged on the ground that they do not reflect a rational classification in relation to the objects of the Act. The arguments of Mr. T. Srinivasamoorthy are as follows :

(3.) IN Federation of Hotel and Restaurant Association of INdia v. Union of INdia , the Supreme Court has pointed out the scope of the taxation power of Parliament. It observed (at page 121) :