In this appeal by revenue issue involved is, whether disallowance of publicity expenditure under section 37(3A) of Income-tax Act, 1961 ('the Act') is justified or not. connected issue is, whether in case of assessee section 37(3D) applied or not. facts of case lie in small compass. 2. assessee was partner of firm, Padmalaya Pictures, Bangalore. That firm produced picture by name 'Patnavasam'. After producing firm first was dissolved with effect from 28-2-1978. assessee acquired exploitation rights of film as per dissolution deed dated 1-3-1978. During accounting year ending on 31-3-1979 assessee exploited film through Sree Films, Vijayawada. assessee claimed publicity expenses of Rs. 1,81,862. Applying provisions of section 37(3A) , ITO disallowed Rs. 27,279. On appeal, AAC was of view that assessee's business was industrial undertaking for manufacture or production of articles and, therefore, provisions of section 37(3D) applied and, consequently, disallowance under section 37(3A) was not called for. In this regard he has relied on decision of Commissioner (Appeals) in case of Dhakshayani Combines [IT Appeal No. 38 of 1980-81, dated 30-9-1981] wherein it has been held that production of cine films constituted manufacture of industrial product and, therefore, it was industrial undertaking. learned product and, therefore, it was industrial undertaking. learned departmental representative has reiterated grounds taken by revenue in this appeal and urged that inasmuch as assessee did not produce any film during relevant accounting year but only exploited rights of film already produced by dissolved firm, provisions of section 37(3D) were not attracted and alternatively contended that production of motion picture or films did not constitute manufacture or production of article by industrial undertaking in terms of section 37(3D). It was further contended that AAC failed to appreciate that there should be setting up of industrial undertaking which should be continued in succeeding years and this condition was not satisfied by assessee. Therefore, he urged that order of AAC should be set aside and that of ITO be restored. 3. learned counsel for assessee contended that it was assessee who produced film and, therefore, provisions of section 37(3D) were attracted and consequently, supported order of AAC. 4. We have duly considered rival submissions and record of case. At outset, we have to observe that copy of dissolution deed dated 1-3-1978 was not made available to us for perusal and appreciation of facts of case. On face of record it is admitted fact that assessee has obtained only exploitation rights of film. 'Patnavasam' from defunct firm, Padmalaya Pictures, Bangalore, and he has exploited picture through Sree Films. Vijayawada. Therefore, it is clear to us that film was produced by defunct film, exploitation rights were acquired by assessee and film was exhibited through Sree Film, Vijayawada. Therefore, assessee stands in capacity of distributor though he acquired film by virtue of dissolution deed dated 1-3-1978. In this connection, it is to be pointed out that assessee has acquired rights of exploitation of film after he ceased to be partner of firm on 28-2-1978. Therefore, it cannot be said that assessee has produced film himself and in any case within accounting year relevant for assessment year 1979-80. Section 37(3D) reads as under: "In case where assessee has set up industrial undertaking for manufacture or production of any articles, nothing in sub-section (3A) shall apply in respect of expenditure on advertisement. publicity or sales promotion incurred by assessee, for purposes of business of such undertaking, in previous year in which such undertaking begins to manufacture or produce such articles and each of two previous years immediately succeeding that previous year." persual of aforesaid section shows that assessee should set up industrial undertaking and incur advertisement expenditure for purpose o f business of such undertaking in previous year in which assessee manufactures or produces articles and in each of two succeeding previous years. Only if these conditions were satisfied limitation of allowance of expenditure on advertisement contained in section 37(3A) would be inapplicable or otherwise not. learned representative of assessee has also not brought to our notice factual position regarding setting up of industrial undertaking in previous year relevant for assessment year 1979-80 and in two subsequent years. It is also not known whether assessee has subseqnetly produced any picture of his own and incurred and expenditure by way of publicity. In this connection we have to observe that AAC has merely relied on decision of Commissioner (Appeals) in case of Dhakshayani Combines (supra) without giving any finding of fact in this regard. relevant portion of order of Commissioner (Appeals) reads as under: "I have carefully considered above submissions. I am not in agreement with leaned representative in his claim that there should be no expenditure on advertisement, publicity or sales promotion so far as feature films are concerned. In fact such expenditure in feature films start right from muhurat day and continue till release of pictures themselves. claim that making massive publicity is inherent in nature of film business and that makes it distinct from publicity campaign launched by other industries also does not make much of material difference on plain regarding of sections. Further, tax is on income of producer concerned. Therefore, reference to turnover and gross receipts would have to be taken to as references to assessee-producer and not as referring to collections made by distributors or theatre owners." aforesaid extract of order of Commissioner (Appeals) emphasised by us clearly shows that reference to turnover or gross receipts contained in section 37(3A) would apply to case of assessee-producer and not collections made by distributors from theatre owners. In other words, Commissioner (Appeals) has held that provisions of section 37(3D) apply only to case of assessee-producer and, consequently, disallowance under section 37(3A) is not applicable to such assessee. There is no dispute regarding fact that production of feature films is industrial undertaking and support can also be taken from Circular No. 24 [F. No. 6/22/68-IT (A-I), dated 23-7-1969 see TAXMANn's Direct Taxes Circular Vol. 1, 1985 edn., p. 854]. On facts of case available on record, there is nothing to show that assessee's business in industrial undertaking and he has incurred the assessee's business in industrial undertaking and he has incurred publicity expenditure in capacity of producer in year of manufacture. Consequently, we are of considered opinion that provisions of section 37(3D) were not applicable and consequently limitation of expenditure contained in sub-section (3A) of section 37 was rightly attracted. In this case there is no dispute regarding quantum of disallowance but dispute is with regard to applicability of section 37(3A) and section 37(3D). For reasons stated by us, we have no hesitation in setting aside order of AAC as it is not justified in law and in circumstances of case and upholding order of ITO which is in accordance with law. 5. In result, appeal of revenue is allowed. *** SECOND INCOME TAX OFFICER v. G. HANUMANTHA RAO