ORDER

Akil Abdul Hamid Kureshi, J.

1. These Tax Appeals arise out of common judgment of the Income Tax Appellate Tribunal, Ahmedabad ["Tribunal" for short] dated 21st September, 2012. We may notice questions framed in Tax Appeal No. 257 of 2013, which read as under:-

(A) "Whether the Appellate Tribunal has substantially erred in deleting the disallowance of advertisement expenses amounting to Rs. 35,64,277/- [being 30% of advertisement expenses] ?"

(B) "Whether the Appellate Tribunal has substantially erred in totally overlooking the fact that marketing was not the responsibility of the assessee but of Rasna Private Limited and whether the Appellate Tribunal's decision is perverse ?"

(C) "Whether the Appellate Tribunal has substantially erred in not appreciating that by advertising Rasna Branch, an intangible asset was created, which was not even owned by the assessee and therefore, the expenses relatable thereto were not for the business purpose of the assessee and in the alternative were capital in nature ?"

(D) "Whether the Appellate Tribunal has substantially erred in not appreciating that the Brand "Rasna" was not owned by the assessee and any advertisement expenses incurred for augmenting the brand value cannot be considered to be wholly and exclusively for the purpose of its own business ?

(E) "Whether the order of the Appellate Tribunal is perverse on facts since it has not considered the fact that the Rasna Branch is not owned by the assessee ?

From the judgment of the Tribunal under challenge, we noticed that the Tribunal relied on its earlier decision in case of this very assessee to rule in favour of the respondent. Learned counsel for the Revenue candidly pointed out that such earlier decision of the Tribunal was carried in appeal by the Revenue in Tax Appeal No. 352 of 2012, which was dismissed by Order dated 30th October, 2012, making following observations:-

5. The facts are not in dispute. The assessee had claimed advertisement expenses incurred by it for promotion of its products under the Rasna brand name. It is not the case of the appellant that the assessee did not incur such expenditure for the purpose of its business. The case of the appellant is that as a consequence of such advertisements the Rasna brand name is built up, which is not owned by the assessee and that one Wave Foods Pvt. Ltd. with a larger turnover than the assessee does not incur any advertisement expenses but is benefited by the advertisements issued by the assessee and as such it cannot be said that the expenditure incurred by the assessee is wholly and exclusively for the purpose of its business. The question of allowability of expenditure incurred for advertising the products manufactured by the assessee, per se, is not in dispute. The department's case is that since other parties are also benefited through such advertisements, a certain portion of such expenses is required to be disallowed to that extent.

6. Sub-section (1) of section 37 of the Income-tax Act, 1961 lays down that any expenditure (not being in the nature of capital expenditure or personal expenses of an assessee) laid out or expended wholly and exclusively for the purposes of its business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business 37 lays down that notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. Thus, for expenditure to be allowable under section 37 of the Act it must have been (a) paid wholly and exclusively for the purpose of the business or profession and (b) must not be (i) capital expenditure, or (ii) personal expense. It must also not fall within any of the exceptions carved out under sub-section (2B) of section 37.

7. Examining the facts of the present case in the light of the above statutory provision, insofar as the assessee is concerned it has paid the entire amount towards advertisement expenses incurred wholly and exclusively for its business. From the record of the case, it is apparent that the assessee has advertised only the products manufactured by it. Besides, it is not the case of the appellant that such expenditure is capital in nature or that it is in the nature of a personal expense, nor does it fall within any of the exceptions carved out under sub-section (2B) of the Act. Thus, the expenditure in question does satisfy the requirements of section 37 of the Act. Is it then permissible for the revenue to go beyond the statutory provision and say that such expenditure is not incurred wholly and exclusively for the purpose of the assessee's business merely because incidentally the owner of the brand and other manufacturers of products under the same brand name also obtain some benefit because of such advertisements?

8. At this juncture, it may be germane to refer to the decision of this court in Commissioner of Income Tax, Gujarat II v. Raipur Manufacturing Company Ltd., (supra) on which reliance has been placed by the learned counsel for the assessee. The facts of the said case were that the Raipur Mills Employees' Co-operative Credit Society Ltd., was established for the benefit of the employees of the assessee-company, Raipur Manufacturing Co. Ltd., and the members of the society were employees of the assessee-company. The managing committee of the society consisted of the officers of the assessee-company nominated by the assessee and some elected representatives of the members. In 1952, a sum of Rs. 2,35,268 was found to have been misappropriated from the funds of the society and one R, who was involved in this, was convicted and sentenced. The society went into liquidation. As the misappropriation had deprived the workers of the company of their hard earned savings lying with the society either in the form of share capital or deposits, there was great unrest among the workers. The situation was tense and there was likelihood of strike, violence and loss of life. Finally the matter was compromised with the consent of a majority of the members of the society in number and value, under a draft agreement between the liquidator, the company and three members of the managing committee of the society and the board of directors of the company passed a resolution on March 1, 1962, accepting the agreement, and on the same day a formal agreement was entered into between the company and the liquidator and the company paid to the liquidator an amount of Rs. 76,161 as per the agreement. The assessee-company claimed deduction of this amount of Rs. 76,161. The Income-tax Officer held that it was purely an ex gratia payment and rejected the claim of the assessee. On second appeal, the finding of the Appellate Tribunal was that the payment was made by the assessee-company to buy peace and to see that the employees were contented and that there was no disturbance in the smooth working of the factory because of strike, stoppage of work, or rowdyism in the mill premises and the Tribunal allowed the deduction. On a reference this High Court held thus:

We may note that when the Tribunal dealt with the matter and allowed this deduction to the company it found that there was sufficient evidence on the record to show that the expenditure in question was incurred by the assessee-company not for any third party' but only for itself with a view to preserve peace in its business. The Tribunal observed:

Finally, we have also before us the board's resolution, dated March 1, 1962, and the agreement which was eventually arrived at between the concerned parties on that very date showing that the company had agreed to make the payment only to pacify the workers and to restore smooth working of its factory. It is thus very evident from all these materials that the payment in question was made not with a view to help the society nor out of any philanthropical motives but purely from a business point of view. We find that there were two alternatives before the assessee-company, viz., one to stick to its legal rights and to resist all the demands of the workers to get reimbursement from the funds of the company, and thus to invite the possibility of a strike, stoppage of work and rowdyism in the mill premises and, as a result of this, a substantial loss in production. The second alternative was to make some sacrifice and thus to purchase peace so that the company could go on with its production and would thereby be able to make its usual profits with the co-operation of its workers. The company has obviously chosen the second alternative which to the best of its judgment was more conducive to its business interests.

Thus, the finding of the Tribunal was that this payment was made by the assessee-company to buy peace and to see that the employees were contented and that there was no disturbance in the smooth working of its factory because of strike, stoppage of work or rowdyism in the mill premises.

There are a large number of decisions laying down as to what is "business expediency" and we need refer to only two cases, in this connection. The first case is of the Bombay High Court in Tata Sons Ltd.…Assessees v. The Commissioner Of Income-Tax, Bombay….* [1950] 18 ITR 460. There the assessee, a limited company, held the managing agency of another company. Under the managing agency agreement the assessee was to be paid a commission at a certain rate which was to be computed upon the net profits of the managed company. During the relevant year the assessee paid voluntarily a certain sum as its share of the bonus which the managed company paid to some of its officers. The bonus paid by the managed company was not an unreasonable bonus and it was not such that a deduction could not be claimed by the managed company under section 10(2)(x) of the Indian Income-tax Act, 1922. The assessee claimed that the payment made by it was a permissible deduction under section 10(2)(xv) of the Act of 1922; and the Bombay High Court held that looking at the payment from the point of view of commercial principles what the assessee had done was something which had as its object increasing the profits of the managed company and thereby increasing its own share of the commission and, therefore, the sum claimed by the assessee was wholly and exclusively expended for the purposes of its business and was an allowable deduction under section 10(2)(xv) of the Act. Chagla, C.J., delivering the judgment of the Division Bench, observed at page 467 of the report:

Now, the decided cases show that one has not got to take an abstract or academic view of what is proper expenditure laid out or expended wholly and exclusively for the purposes of one's business. One has got to lake into consideration questions of commercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the Court is whether the expenditure was a part of the process of profit-making. If the expenditure helps or assists the assessee in making or increasing the profits, then, undoubtedly, that expenditure would be expended wholly and exclusively for the purposes of business. It has been urged that the payment made by the assessee was a voluntary payment. That is perfectly true, because there was no obligation whatever upon the assess to share the bonus with the managed company, and in sharing the bonus the assessee did an act which it was under no obligation to do. But, even a voluntary act if performed for commercial expediency would still be an expenditure falling within section 10(2)(xv) if it can be shown that it was intended for the purpose of making or increasing the profits of the assessee-company. It has also been urged that the payment has been made not to the employees of the assessee company but to the employees of the managed company, a different entity altogether. Here again, if it can be shown that there was a very important nexus between the assessee-company and the managed company which necessitated the assessee-company making the payment to the employees of the managed company, then again it would be possible for the assessee company to satisfy us that the expenditure was one which fell within the ambit of section 10(2)(xv). Now, it cannot be seriously disputed that the bonus was paid by the managed company to their employees in order to increase the efficiency of the working of the company. An increased efficiency of that company would incidentally result in higher and better profits, and the assessee-company would be as much interested in the working of the managed company being more efficient as the managed company itself. Whatever tended to increase the profits of the managed company would also tend to increase the income and profits of the assessee company. Therefore, it cannot be suggested that the assessee-company had an indirect or ulterior motive in making this payment. The only motive by which it was actuated was a purely commercial and pecuniary one and that was to see that more profits were made by the managed company so that its own commission should thereby be increased.

The other decision, which has a bearing on the point, is our own decision in J.R. Patel and Sons (P.) Ltd. v. Commissioner of Income Tax [1968] 69 ITR 782 (Guj.), and there we held that in deciding whether a payment was made for purposes of business, the correct approach would be to see whether it was made on grounds of commercial expediency for the ultimate benefit of the business. Whether that benefit is to accrue immediately or after a lapse of time and whether directly or indirectly is immaterial. At page 787, the following principles called out by a Division Bench of this High Court from the earlier reported cases were reproduced, with which we respectfully agreed:

(1) One has not got to take an abstract or academic view of what was proper expenditure laid out or expended wholly and exclusively for the purposes of one's business but one has got to take into consideration questions of commercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the Court is whether the expenditure was a part of the process of profit making.

(2) The test for the purpose of deciding whether a particular amount can be allowed as deductible allowance under section 12(2) of the Act is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertakings in order indirectly to facilitate the carrying on of its business. If the transaction had been entered into on the ground of commercial expediency in order even indirectly to facilitate the carrying on of the business of the assessee, it would attract the provisions of section 12(2) even though the transaction might have been voluntarily entered into.

(3) If the payment was made with an indirect or improper motive for some considerations aliunde the business or out of generosity, then the payment is not liable to be regarded as one covered by the provisions of section 10(2)(xv): that the matter has to be viewed in the light of principles of commercial trading and commercial expediency and what is required is that the expenditure must be germane to the business of the assessee and not something which is de hors the business.

The first alternative was to refuse to make any payment and to stick to its strict rights; and the other alternative which was not altogether an imaginary one in the light of the events that had happened in the past was to invite strike, stoppage of work and rowdyism in the mill premises and thus suffer a substantial loss in production. If in order to avoid such consequences which might lead to loss to the assessee company, the assessee-company decided to purchase peace so that the company could go on with its production by securing the co-operation of its workers, and the company decided to make this payment, it cannot be said that the payment was not made out of commercial expediency. Just as in the case of Tata Sons Ltd (supra) an attempt was made to secure the contented and satisfactory working of the officers of the managed company, in the instant case, the assessee-company has made an attempt to buy peace in order to see that the peaceful working of the factory of the assessee company was not disturbed in any way. It is true, as was the case in Tata Sons Ltd. case (supra), the assessee-company was not bound to make the payment; and in that sense it was a voluntary payment; but at the same time, the nexus between the payment by the assessee-company, and commercial expediency is very clear, viz., smooth working of the factory of the assessee-company being ensured by making of this payment, as unrest amongst the employees of the company would, to a certain extent, be eliminated by such a payment.

9. In the light of the principles propounded in the decisions referred to hereinabove, it is apparent that while examining a claim for deduction under section 37 of the Act, what has to be seen is whether the expenditure had been incurred wholly and exclusively for the purpose of the assessee's business and whether it falls under any of the exceptions carved out under sub-section (2B) thereof, and nothing more. Once it is found that the expenditure had been incurred by the assessee for publicity or advertisement, it is not for the department to consider what commercial expediency justified such expenditure. It is, therefore, not permissible for the Assessing Officer to scrutinize the claim any further to examine as to whether in the process any third party has also benefited. The mere fact that on account of the expenditure incurred by the assessee wholly and exclusively for its own business, incidentally some third party is also benefited is no ground to disallow any part of such expenditure. In the case at hand, the assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessee's business. Under the circumstances, merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also indirectly benefited, it cannot be said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also be benefited on account of such advertisements as the advertisements may enhance the value of the brand as a whole. In fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any of the users of such brand name advertises its products. However, merely because some other persons are incidentally benefited from the advertisements issued by the assessee, the same would not change the character of the expenses from being wholly and exclusively for the purpose of its business. Therefore, it is not a relevant circumstance for the purpose of considering allowability of expenditure under section 37 of the Act. As held by the Supreme Court in Commissioner of Income Tax, Bombay City I v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, to find out whether a deduction claimed in permissible under the Act or not, all that we have to do is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. We have to take the provisions of the statute as they stand. If the allowance claimed in permissible under the Act then the same has to be deducted from the gross profit.

10. The Tribunal was, therefore, wholly justified in confirming the order of the Commissioner (Appeals) allowing such expenditure under section 37 of the Act. There being no legal infirmity in the impugned order, the same does not give rise to any question of law, much less, a substantial question of law so as to warrant interference. The appeal is, accordingly, dismissed.

In the result, these Tax Appeals are also dismissed.