R. Jayasimha Babu, J.@mdashThe question referred at the instance of the Revenue is,
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in its conclusion that commission and discounts on
sales amounting to Rs. 9,15,115 should not be taken into account while considering the disallowance u/s 37(3A) of the Income Tax Act, 1961 ?
2. The assessment year is 1985-86.
3. The assessee-company is a public limited company engaged in the manufacture of soda ash and ammonium chloride. It had incurred an
expenditure of Rs. 9,15,115 in the relevant previous year towards commission and discounts on sales to its dealers. Its claim that that amount is
outside the scope of Section 37(3A) of the Income Tax Act, inasmuch as commissions and discounts did not amount to sales promotion expense,
was negatived by the Assessing Officer and the Commissioner, but was allowed by the Tribunal.
4. The term ""sales promotion"" is not to be confused with the sales actually effected. While ""sales promotion"" are measures taken by the assessee to
pro- mote generally the sales of the products manufactured by it, or dealt with by it, individual sales made in the normal course of business on
commercial terms either directly to the customer, or through its wholesale and other dealers to whom, under the terms of trade discounts and
commissions are allowed, cannot be regarded as sales promotion.
5. This court in the case of Commissioner of Income Tax Vs. India Pistons Ltd., has held that sale of a product at a discount did not amount to a
sales promotion expense. It was observed in that judgment that (page 280) :
The sales promotion normally refers to an activity which is intended to promote the sale of all the products by way of advertisement or special
campaigns. Offering a discount on the price in effect is only an instant of the sale of the company''s product at a lower price and cannot be
regarded as expenditure on sales promotion.
6. The question referred to us is required to be, and is answered against the Revenue, and in favour of the assessee.
