Section 37

General.

37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 ¹[and section 80VV] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

(2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder :—

(i)	on the first Rs. 10,00,000 of the profits and gains of the business (computed before making any allowance under section 33 or section 33A or in respect of entertainment expenditure)		at the rate of 1 per cent or Rs. 5,000, which ever is higher ;
(ii)	on the next Rs. 40,00,000 of the profits and gains of the business (computed in the manner aforesaid,		at the rate of ½per cent;
(iii)	on the next Rs. 1,20,00,000 of the profits and gains of the business (computed in the manner  aforesaid)		at the rate of ¼ per cent ;
(iv)	on the balance of the profits and gains of the  business (computed in the manner aforesaid)		nil.

(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2) no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder :—

(i)	on the first Rs. 10.00,000 of the profits and gains of the business or profession (computed before  making any allowance under 1[section 32A or] section 33 or section 33A or in respect of enter  : tainment expenditure)		at the rate of 1 per cent or Rs. 5,000, which-ever is higher;
(ii)	on the next Rs. 40,00,000 of the profits and gains of the business or profession (computed in the manner aforesaid)		at the rate of ½ per cent ;
(iii)	on the next Rs. 1,20.00,000 of the profits and gains of the business or profession (computed in  the manner aforesaid)		at the rate of ¼ per cent;
(iv)	on the balance of the profits and gains of the business or profession (computed in the manner aforesaid)		nil.

Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed—

(a) in the case of a company

(i) in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub-section (2), the same proportion as the number of days comprised in the period commencing on the first day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year ;

(ii) in the respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the first day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year ;

(b) in any other case—

(i) in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub-section (1) ;

(ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year.

Explanation : For the purposes of this sub-section ²[* * *], "entertainmen expenditure" includes—

(i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968 ;

(ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person.

¹[(2B) 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. ]

(3) Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.^*

 ² [(3A) Notwithstanding anything contained in sub-section (1) but without prejudice to the provisions of ³ [sub section (2B) or ] sub-section (J), where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely :—

(i) where such aggregate expenditure does not  exceed ¼ per cent of the turnover, or as the case may be, gross receipts of the business or profession		10 per cent of the adjusted expenditure ;
(ii) where such aggregate expenditure exceeds  ¼ per cent but does not exceed ½ per cent  of the turnover or, as the case may be, gross receipts of the business or profession		12½ per cent of the adjusted expenditure ;
(iii) where such aggregate expenditure exceeds  ½ per cent of the turnover or, as the case  may be, gross receipts of the business or profession		15 per cent of the adjusted expenditure.

Explanation : For the purposes of this sub-section,—

(a) "adjusted expenditure" means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under sub-section (1) and as further reduced by so much of such expenditure as is not allowed under ¹ [sub-section (2B), or sub-section (3), or both ] ;

(b) "turnover" and "gross receipts" mean turnover or gross receipts, as the case may be, as reduced by any discount or rebate allowed by the assessee.)

² [(3B) Nothing contained in sub-section (3A) shall apply in relation to any expenditure incurred by an assessee on—

(i) advertisement in any small newspaper ;

(ii) advertisement in any newspaper for recruitment of personnel ;

(iii) the publication in any newspaper of any notice required to be published by or under any law;

(iv) the maintenance of any office for the purposes of advertisement, publicity or sales promotion ;

(v) the payment of salary [as defined in clause (1) of section 17 ] to any employee engaged in advertisement, publicity or sales promotion ;

(vi) the holding of, or the participation in, any press conference, sales conference, trade convention, trade fair or exhibition ;

(vii) publication and distribution of journals, catalogues or price lists ;

(viii) such other items as may be prescribed.

Explanation 1 : For the purposes of clause (i), an advertisement in a nespaper shall be deemed to be an advertisement in a small newspaper, if the average circulation of such newspaper in the year in which such advertisement has been published, ³ [does not exceed ] fifteen thousand copies.

Explanation 2 : "Average circulation", in relation to any newspaper, shall be taken to be the number arrived at by dividing the aggregate of the number of copies of such newspaper circulated during a year by the total number of days on which such newspaper was published in that year. ]

²[(3C) For the removal of doubts, it is hereby declared that nothing contained in sub-section (3A) shall apply in relation to expenditure in the nature of entertainment expenditure incurred by an assessee in connection with advertisement, publicity or sales promotion and such expenditure shall be governed by the provisions of sub-section (2A). ]

² [(3D) In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing, in sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assesssee, for the purposes of the business of such undertaking, in the previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year. ]

(4) Notwithstanding anything contained in sub-section (1) or sub-section (3),—

(i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maint ??? of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as "guest-house") ;

(ii) in relation to the assessment year commencing on the first day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in a guest-house :

Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest-house :

Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house—

(a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him ; and

(b) is intended for the exclusive use of such employees while on leave.

Explanation : For the purposes of this sub-section,—

(i)residential accommodation in the nature of a guest-house shall include accommodation hired Dr reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year ; and

(ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in. respect of such accommodation.

 

 

[As amended by the Finance Act, 1980 and the Finance (No. 2) Act, 1980]