JUDGMENT S.H. Kapadia, J.
1. On March 30, 2001, the appeal of the Department was allowed with reasons to be recorded separately subsequently. We, accordingly, now, hereby give reasons for allowing the appeal.
2. The following question of law arises for determination under Section 260A of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in excluding 50 per cent of the expenditure incurred by the assessee on the distribution of free samples in computing the disallowance under Section 37(3A) ?"
3. Facts :
During the assessment year 1984-85, the assessee was engaged in the manufacture and sale of basic drugs and formulations. According to the assessee, the said drugs and formulations were ethical products and not consumer products. They were also known as prescription products as distinguished from, over-the-counter products. According to the assessee, samples were distributed to the doctors in order to test the efficacy of the products and not to advertise the products. It was, therefore, submitted by the assessee that the provisions of Section 37(3A) were not applicable to the expenditure incurred on the samples distributed by the company. This claim of the assessee was rejected by the Assessing Officer who came to the conclusion that free distribution of samples was in the nature of advertisement and sales promotion and, therefore, Section 37(3A) was applicable. Being aggrieved by the disallowance, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The appellate authority dismissed the appeal. Therefore, the matter was carried by the assessee to the Tribunal which came to the conclusion that in the light of the judgment of the Andhra Pradesh High Court in the case of CIT v. J and J Dechane Laboratories (P.) Ltd. [1996] 222 ITR 11, the expenditure on distribution of samples to test the efficacy of drugs is not an expenditure in the nature of advertisement or sales promotion and, therefore, Section 37(3A) was not applicable. Being aggrieved, the Department has come in appeal to this court under Section 260A of the Act.
4. Findings :
In the case of Eskayef v. CIT , it has been held by the Supreme Court that even in the case of ethical/prescription drugs the target for publicity, advertisement or sales promotion could only be the doctor who would prescribe the medicine and, therefore, such distribution amounted to publicity and sales promotion and, therefore, the case fell within the scope of Section 37(3A) of the Income-tax Act. The Supreme Court overruled the judgment of the Andhra Pradesh High Court reported in CIT v. J and J Dechane Laboratories (P.) Ltd. [1996] 222 ITR 11. However, learned counsel for the assessee submitted that, in the present matter, the case should be remitted back to the Tribunal inasmuch as no opportunity was given to the assessee in the present case to show that free samples were given only to find out the reaction of the doctors about the efficacy of the drug. That no opportunity was given to the assessee in the present case to prove that the supply of free samples was confined to the initial stage of production of a new drug. In this connection, learned counsel placed reliance on para. 2 of the aforestated judgment of the Supreme Court at page 119. We do not find any merit in this contention. Firstly, in the present case, we are concerned with the assessment year 1984-85. Secondly, nothing prevented the assessee from raising the aforestated contention before the authorities below. In fact, in the present matter, the Tribunal has observed that no details have been given by the assessee as to whether the expenditure incurred was on distribution of old drugs or whether it was given on distribution of new drugs. Hence, the judgment of the Supreme Court in Eskayef v. CIT squarely applies.
5. Accordingly, the above question is answered in the negative, i.e., in favour of the Department and against the assessee.
6. Appeal is accordingly allowed with no order as to costs.