D.A Mehta, J.:— These tax appeals were originally heard and decided, vide judgment rendered on April 25, 2001 (Deputy CIT v. Core Health Care Ltd. [2001] 251 ITR 161 (Guj)). In the same judgment, Civil Applications Nos. 53 and 54 of 2001 moved by the Revenue were rejected summarily. The revenue carried the matter in appeal before the Supreme Court of India and appeals against the judgment rendered in both the tax appeals and order made in both the civil applications were admitted by the Supreme Court. Vide judgment rendered on February 8, 2008 (Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC)), the apex court dismissed the civil appeals of the Revenue against the judgment rendered in the two tax appeals. However, in relation to the two civil applications and the order made therein, this is what has been observed by the apex court (page 202):

“Apart from the above question under section 36(1)(iii), the present civil appeals are filed by the Department against the decision of the High Court whereby the High Court has dismissed Civil Applications Nos. 53 and 54 of 2001 filed by the Department. It may be noted that during the pendency of Tax Appeals Nos. 449 and 450 of 2000, the Department had moved the above two civil applications for amendment of its memorandum of appeal raising substantial questions of law, namely:—

(a) whether advertisement expenses incurred by the assessee to create a brand image with enduring benefit are allowable as revenue expenditure?

(b) whether the Tribunal had erred in granting deduction under section 35D regarding short-term loan, in view of the Explanation to section 35D(3) which refers only to long-term borrowings?

(c) whether the Tribunal had erred in directing deduction under sections 80HH and 80-I on the miscellaneous income of Rs. 26,64,113 being income on sale of empty containers?

Although the Department had moved the said Civil Applications Nos. 53 and 54 of 2001 during the pendency of Tax Appeals Nos. 449 and 450 of 2000 well within limitation the High Court, without answering the above three questions, summarily rejected Civil Applications Nos. 53 and 54 of 2001. We are of the view that the High Court had erred in dismissing the above two civil applications for amendment of the memorandum of appeal in Tax Appeals Nos. 449 and 450 of 2000. In our view, the above three questions are substantial questions of law and, therefore, the High Court ought to have decided those questions.”

2. Thus, in effect, both the civil applications seeking amendment have been allowed by the apex court and the aforesaid three questions, formulated as substantial questions of law, are now required to be decided by this court. In relation to the first question regarding advertisement expenses, the claim of the assessee has been rejected by treating the expenditure in question as capital expenditure on the ground that it was a special advertisement campaign launched by the assessee-company for creating a corporate image of the company and was not incurred for running the existing business of the assessee-company. The assessee-company had undertaken diversification plan and as a public issue was forthcoming to make the people aware about various new products of the company, the advertisement campaign was launched, which thus amounted to obtaining a benefit of enduring nature resulting in the expenditure being of capital nature. Rs. 70,22,742 was, therefore, disallowed.

3. When the matter was carried before the Commissioner (Appeals) the order made by the Assessing Officer was confirmed. According to the Commissioner (Appeals), the assessee itself having treated the amount as deferred revenue expenditure in its books of account, claim for deduction of the entire amount while filing return of income could not be permitted and hence the profits had to be worked out on the basis of profits shown in the books of account.

4. The assessee carried the matter further in appeal before the Tribunal and succeeded. The Tribunal has held that allowability or otherwise of the expenditure had to be tested as per the requirements of the provisions of section 37(1) of the Income-tax Act, 1961 (the Act), that the expenditure in question was not of personal nature and the only test which was then required to be applied was whether the expenditure was capital in nature. The Tribunal held that making of accounting entries in the books of account was not determinative of the character and/or nature of the claim. That the expenditure in question did not bring into existence any tangible asset and merely because the expenditure may bring some benefit of an enduring nature to the assessee, that factor alone was not sufficient to treat the expenditure as capital expenditure. The Tribunal has relied on the two apex court decisions in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377.

5. Learned counsel appearing for the Revenue has submitted that once the Assessing Officer and the Commissioner (Appeals) had concurrently come to the conclusion that the expenditure resulted in a benefit of enduring nature, the Tribunal could not have taken a different view of the matter as the finding recorded by the Assessing Officer and the Commissioner (Appeals) was a finding of fact. He, therefore, submitted that the Tribunal's order on this count was required to be reversed and question No. 1 be answered in favour of the appellant.

6. On behalf of respondent-assessee, learned senior counsel submitted that the law is well settled that incurring of advertisement or publicity expenses would never be capital in nature, once it was found that the expenditure in question was incurred during existence of a running business. He placed reliance on the following decisions:

(a) Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353 (All);

(b) Delhi Cloth and General Mills Co. Ltd. v. CIT [1992] 198 ITR 500 (Delhi); and

(c) Commissioner Of Income-Tax v. Sakthi Soyas Ltd. [2006] 283 ITR 194 (Mad).

7. In relation to the second question relating to allowability of deduction under section 35D of the Act, the Assessing Officer disallowed the same holding that the expenditure in question was in the capital field and could not have been considered as capital employed for the purposes of computing relief under section 35D of the Act. In appeal, the appellate authority did not agree with the view expressed by the Assessing Officer and came to the conclusion that the definition of “capital employed” and the phrase “long-term borrowings” as appearing in the Explanation to subsection (3) of section 35D of the Act did not make any distinction between short-term borrowings and long-term borrowings as no period was prescribed. Therefore, the bridge loan availed of by the respondent-assessee had to be considered as part of capital employed for the purposes of working out deduction under section 35D of the Act. This order made by the Commissioner (Appeals) has been confirmed by the Tribunal.

8. On behalf of the appellant-Revenue it was submitted that for the purposes of computing the figure as stipulated by sub-section (3) of section 35D of the Act, capital employed in the business of the company had to be worked out and the said definition read with the definition of long-term borrowings indicated that any short-term borrowing could not be treated as capital employed in the business of the company.

9. On behalf of the respondent-assessee it was pointed out that both the Commissioner (Appeals) and the Tribunal had correctly read the provisions and the order on this count made by the Tribunal was not required to be disturbed.

10. In relation to question No. 3, the Assessing Officer was of the view that while computing the relief under sections 80HH and 80-I of the Act, amount of Rs. 26,64,113, being miscellaneous income on sale of containers, had to be excluded as being ineligible for deduction under the said provisions, as the same was not derived from the industrial undertaking. The Commissioner (Appeals) has not agreed with the Assessing Officer and in second appeal the Tribunal has confirmed the order made by the Commissioner (Appeals). Both the appellate authorities have held that the containers were acquired as part of purchases of raw materials which were used for the purpose of business of industrial undertaking and, therefore, income generated from sale of containers necessarily had to be treated as income from, industrial undertaking in view of the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84.

11. On behalf of the, appellant-Revenue, it was submitted that there was distinction between the phrase derived from and the phrase attributable to as laid down by the apex court in various judgments. That, in the present case, income received on sale of containers cannot be stated to be derived from business of industrial undertaking, though the same may be attributable to such business. Therefore, according to the learned counsel, the issue was required to be answered in favour of the appellant-Revenue by reversing the order of the Tribunal on this count.

12. On behalf of the respondent-assessee it was submitted that the issue was directly concluded by the decision of this High Court in the case of Deputy CIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785 (Guj) with special reference to question No. 5 therein wherein it was held that sale of empty barrels and soda ash jute bags were directly connected with manufacturing activities of the assessee and should be allowed. It was further submitted that special leave petition against the said decision was also rejected by the apex court.

13. In relation to the first item, namely, advertisement expenses, it is not in dispute that the expenditure of Rs. 70 lakhs and odd was incurred on a special advertisement campaign. However, that by itself would not be sufficient to determine as to whether the expenditure in question is on revenue account or capital account. The approach of the Commissioner (Appeals) that the expenditure in question was treated as deferred revenue expenditure and hence was capital in nature, cannot be termed to be a correct approach because in so far as the Income-tax Act is concerned, there is no such category of deferred revenue expenditure. Similarly, making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure.

14. The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) and Alembic Chemical Works Co. Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The expression “asset or advantage of an enduring nature” has been evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions.

15. Applying the aforesaid settled legal position to the facts of the case, it is not possible to agree with the appellant-Revenue that the advertisement expenses incurred by the respondent-assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit, so as to be treated as capital in nature.

16. Question No. 1 is, therefore, answered in the affirmative, namely, advertisement expenses incurred by the assessee to create brand image is allowable as revenue expenditure.

17. In so far as the second question is concerned, section 35D relates to amortisation of certain preliminary expenses incurred after the specified date but before the commencement of business or after the commencement of business, in connection with the extension of the industrial undertaking or in connection with setting up a new industrial unit. The expenditure which is allowable is specified in sub-section (2) of section 35D of the Act. Under sub-section (3), a limitation is prescribed as to the-amount of expenditure which would be allowable under sub-section (2) read with sub-section (1) of section 35D of the Act. For working out the limit, therefore, the cost of project or in case of an Indian company, at the option of the company, the capital employed in the business of the company have to be considered as the relevant figure of which certain percentage is permissible as a deduction under section 35D(1) of the Act. The relevant extract material for the present reads:

“Explanation.—In this sub-section—

(a) ‘cost of the project’ means—……

(b) ‘capital employed in the business of the company’ means—… (ii) in a, case referred to in clause (ii) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the industrial undertaking is completed, or, as the case may be, the new industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the company;

(c) ‘long-term borrowings’ means—

(i) any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution which is for the time being approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36 or any banking institution (not being a financial institution referred to above), or

(ii) any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years.”

18. Under the Explanation, clause (a) defines cost of project, clause (b) defines capital employed in the business of the company, and clause (c) defines long-term borrowings. In case of the assessee the factor of cost of project is not relevant and only capital employed in the business of the company is required to be considered, that also as defined in sub-clause (ii) of clause (b) of the Explanation which talks of aggregate of issued share capital, debentures and long-term borrowings as on the last day of the previous year. “Long-term borrowings” means under sub-clause (i) of clause (c) of the Explanation any money borrowed by the company from Government, or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution, which is for the time being approved by the Central Government or any banking institution. Therefore, on a plain reading it becomes apparent that the borrowing has to be from any of the four entities mentioned in sub-clause (i) of clause (c) of the Explanation. No time limit for the purpose of borrowing is laid down in the provision. This assumes significance when one compares the same with sub-clause (ii) of clause (c) of the Explanation wherein it is specified that it should be a period of not less than seven years. Thus, once it is established that the borrowing is from any one of the four entities as specified, the same would be treated as long-term borrowings for the purpose of working out the aggregate of capital employed in the business of the company. In the present case, as found by the Commissioner (Appeals) the borrowings were from the specified categories of financial institutions and banking institutions and, therefore, both the Commissioner (Appeals) and the Tribunal have rightly come to the conclusion that the amount in question was required to be included for the purpose of capital employed in the business and the direction to recompute the deduction under section 35D of the Act was perfectly justified.

19. Accordingly, question No. 2 is answered in the negative. The Tribunal had not erred in granting deduction under section 35D of the Act in the light of the language of the Explanation to section 35D(3) of the Act.

20. In relation to question No. 3 it is an accepted position that the empty containers, which were sold, were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the purchase price which went to make up the total cost of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking. The income generated on sale of such empty containers could be set off against the purchase cost, in other words bringing down the purchase price of raw material, or it could be treated as income directly relatable to the activity of industrial undertaking.-The net result would be the same: either the cost of raw material gets reduced and thus increases profits of manufactured products on sale; or the sale price of containers is directly added to swell the total profits. Therefore, in the light of the decision of this High Court in the case of Deputy CIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785, there is no infirmity in the impugned order of the Tribunal.

21. Question No. 3 is, therefore, answered in the negative. The Tribunal had not erred in directing deduction under sections 80HH and 80-I of the Act on the miscellaneous income of Rs. 26,64,113 being income from sale of empty containers.

22. The appeals are accordingly disposed of, with no order as to costs. Civil Applications Nos. 53 and 54 of 2001

23. In the light of the aforesaid order and the directions made by the apex court, reproduced hereinbefore, Civil Applications Nos. 53 and 54 of 2001 do not survive and stand disposed of accordingly.