JUDGMENT judgment of court was delivered by Sanjiv Khanna J.-The Revenue has filed these appeals under section 260A of Income-tax Act, 1961 ("the Act" for short), relating to assessment years 2002-03, 2003-04 and 2004-05 in case of respondent-assessee, Discovery Communication India. In three appeals following questions were framed for hearing and adjudication: I. T. A. No. 1297 of 2010 (assessment year 2002-03) "(a) Whether Income-tax Appellate Tribunal (in short'the Tribunal') was correct in law and on facts in affirming order of Commissioner of Income- tax (Appeals) (in short'the CIT(A)') whereby Commissioner of Income-tax (Appeals) has deleted addition of Rs. 2,61,54,952 added by Assessing Officer, inter alia, on ground that there was no obligation on part of assessee to incur huge advertisement expenses? (b) Whether Tribunal, while deleting disallowance made by Assessing Officer, was correct in law and on facts in ignoring fact that assessee has acted as agent of foreign company for booking advertisement? " I. T. A. No. 1101 of 2011 (assessment year 2003-04) "(1) Whether Income-tax Appellate Tribunal was correct in law and on fact in affirming order of Commissioner of Income-tax (Appeals), whereby Commissioner of Income-tax (Appeals) has deleted addition of Rs. 67.15 lakhs made by Assessing Officer while disallowing proportional advertisement expenses? (2) Whether order of Income-tax Appellate Tribunal, which is final fact finding authority, is not perverse as it has not gone through facts properly and merely relied on its own order for assessment year 2002-03?" I. T. A. No. 489 of 2013 (assessment year 2004-05) "Whether Assessing Officer was right in making addition of Rs. 1,24,18,732 on account of disallowance of proportionate advertisement expenditure?" respondent-assessee is company and during years in question was subsidiary of M/s. Discovery Channel Mauritius (98 per cent. shares), M/s. Discovery Communication, LLC, USA (1 per cent. shares) and M/s. Discovery Productions Inc., USA (1 per cent. shares) respondent-assessee was engaged in business of distribution, marketing and production of high quality educational and entertainment satellite television programmes for satellite television channels, i.e., Discovery and Animal Planet. Assessment year 2002-03 4.1. In return of income filed for assessment year 2002-03, respondent-assessee had declared "nil" income after setting off brought forward losses of Rs. 4,85,39,897. This return was subsequently revised but again declaring "nil" income after adjustment of brought forward losses of Rs. 4,82,34,363. 4.2. During period relevant to assessment year 2002-03, respondent-assessee had shown programmes sourcing fee of Rs. 5,20,91,937, facilitation fees of Rs. 1,28,75,927, subscription fees of Rs. 23,46,50,460, agency commission and marketing commission fee of Rs. 3,69,91,065, programming revenue of Rs. 65,00,000 and other income of Rs. 54,75,642. 4.3. Assessing Officer observed that assessee had shown gross advertisement revenue of Rs. 15,12,06,722 but only 15 per cent., i.e., Rs. 2,30,26,266 had been credited to profit and loss account as commission earned on advertisement revenue and balance amount had been paid/repatriated to foreign associated enterprises abroad. He opined and considered that advertisement expenses to tune of Rs. 2,61,54,952 were exorbitant, as assessee had declared taxable advertisement receipts of Rs. 2,30,26,266. Advertisement expenses of Rs. 2,61,54,952, he observed, were unjustified as assessee had retained 15 per cent. of total advertisement sale revenue and not entire or 100 per cent. of advertisement revenue. He rejected contention of assessee that advertisements expenses incurred were relatable to earning subscription fee of more than Rs. 23.46 crores, major source of income/receipt. Assessing Officer held that subscription revenue collected from cable operators did not require advertisement expenses. Accordingly, 100 per cent. or entire advertisement expenditure of Rs. 2,61,54,952 was disallowed as non-business expenditure or as expenditure not relatable to respondent-assessee's business but business of associated enterprises resident abroad. I. T. A. No. 1101 of 2011 (assessment year 2003-04) 5.1. respondent-assessee filed return declaring "nil" income. In profit and loss account, assessee had disclosed programme sourcing fee of Rs. 4,22,48,648, subscription fees of Rs. 37,49,90,580, agency commission of Rs. 4,59,53,913, marketing income of Rs. 14,62,341 and other income of Rs. 13,71,488. Assessing Officer noticed that that advertisement sale commission of Rs. 2.78 crores was earned, whereas assessee had claimed advertisement expenses of Rs. 2,37,57,000. Rs. 2.78 crores was only 15 per cent. of total receipts and balance 85 per cent. had been transferred or paid to related or associated enterprise abroad. He rejected assessee's submission that advertisement expenditure was relatable to subscription revenue of Rs. 37.49 crores and said expenditure had to be incurred in terms of licence agreement, which required assessee to publicise and increase reach and viewership of two channels. advertisement expenses, he held, had direct nexus with advertisement revenue. Assessing Officer then observed that as assessee had retained 15 per cent. of advertisement revenue as sale commission and balance 85 per cent. had been repatriated or paid to associated enterprises abroad, therefore, advertisement expenses of Rs. 2.37 crores should not be entirely disallowed. This, he observed, would be unreasonable, therefore, advertisement expenses of Rs. 67.15 lakhs were disallowed. I. T. A. No. 489 of 2013 (assessment year 2004-05) 5.2. For assessment year 2004-05, assessee had filed return declaring income of Rs. 17,87,44,860. In profit and loss account, assessee had shown programme sourcing receipt of Rs. 2,54,16,606, subscription fees of Rs. 39,89,28,282, agency commission of Rs. 7,03,47,271, marketing fee of Rs. 5,86,783 and other income of Rs. 1,00,16,153. Assessing Officer noticed that assessee had shown advertisement sale commission of Rs. 5,32,44,990, which was only 15 per cent. of gross advertisement receipts. He referred to assessment order for assessment years 2002-03 and 2003-04 and held that 85 per cent. of advertisement receipts had been transferred to associated enterprises abroad. assessee had pleaded and urged that it was under contractual obligation as per licence agreement to publicise and promote two channels and had earned subscription revenue of Rs. 39.89 crores, which was directly relatable to advertisement expenses of Rs. 3.10 crores but Assessing Officer did not agree. Assessing Officer quantified disallowance at Rs 1,24,18,732, as advertisement expenses relatable to 85 per cent. of advertisement sale receipts transferred to associated enterprises abroad. First appeal and order of Tribunal respondent-assessee succeeded in first appeal before Commissioner of Income-tax (Appeals). appeals filed by Revenue stand dismissed by Income-tax Appellate Tribunal ("the Tribunal", for short), vide its impugned orders. Factual findings as recorded by Tribunal and legal effect of said findings on merits comprehensive and perspicuous finding of appellate authorities is that advertisement expenditure was incurred in terms of licence agreement granting distribution rights to assessee by associated enterprise, Discovery Asia Inc. Under this agreement, respondentassessee had procured right to distribute signals of Discovery Channel and Animal Planet Channel and right to collect revenue arising or generated from distribution. Accordingly, assessee had received subscription revenue of Rs. 23.46 crores, Rs. 37.49 crores and Rs. 39.89 crores from cable operators in three assessment years. agreement mandated and required that assessee to develop and expand viewership of Discovery Channel and Animal Planet Channel, which had started with status of "free to air channel" and made transition to "pay channel". Increased viewership obviously meant increased subscription revenue and earnings. It was manifest and self-evident that assessee would have undertaken publicity, advertisement and incurred expenditure on increasing awareness and greater market retention, penetration and expansion. Thus, finding of appellate authorities was that advertisement expenditure was related to and had direct nexus with licence agreement for distributorship and subscription fee collection. There was separate agreement between respondent-assessee and associate enterprises under which assessee had acted as advertisement sale representative. As advertisement sale representative, assessee was entitled to 15 per cent. of gross receipts as its income for services rendered and performed by them. balance 85 per cent. was transferred to associated enterprise abroad. Assessing Officer's enigmatic and equivocal pronouncement that entire advertisement revenue should have been retained as income is mere incantation. programmes were prepared and aired in India by foreign associate enterprise, which had incurred expenditure or paid for software and airing them. finding that entire or 100 per cent. expenditure on advertisement expenses were incurred for higher and increased advertisement revenue, is fanciful and reflects spirit of creativity than realism. Unintendedly, Assessing Officer, as noticed below, impeached and transgressed into domain of international transaction price fixation, without realising that Transfer Pricing officer had accepted price. Assessing Officer, as noticed below under section 37(1) of Act, cannot go into question of reasonableness of advertisement or any other expense. 9.1. Assessing Officer, thus, fallaciously and wrongly held that entire expenditure, on advertisement, incurred by assessee related only to advertisement sales commission or receipt and was not incurred to increase subscription fee by promoting two channels. Noticeable, entire subscription fee was retained by assessee and nothing was repatriated or paid to associated enterprises abroad. Section 37(1) of Act Under section 37(1) of Act, any expenditure not being in nature of expenditure described in sections 30 to 36 of Act has to be allowed as deduction in computing income chargeable under head "Profit and gains from business and profession", if following conditions are satisfied: (a) it is not capital expenditure; (b) it is not personal expenditure; and (c) it should be expended wholly and exclusively for purpose of business. 10.1. first two conditions are negative in nature, while third condition or requirement is positive. It is not case of Revenue that expenditure on advertisement was capital or personal in nature. expression "expenditure" denotes idea of spending or paying out. It is not case of Revenue that expenditure was not incurred or was not genuine, but fictitious. 10.2. question raised is whether expenditure was wholly and exclusively for purpose of assessee's business. words "wholly and exclusively" though not synonymous and are sufficiently wide but are not restricted to expenditure solely incurred for purpose of earning of profits. For amount spent as admissible expenditure under section 37(1), same should be for purpose of business and not for purpose of earning income (see Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 (SC) and CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC). In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC)), it has been observed (page 150): "The expression'for purpose of business' is wider in scope than expression'for purpose of earning profits'. Its range is wide: it may take in not only day to day running of business but also rationalisation of its administration and modernisation of its machinery; it may include measures for preservation of business and for protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as precondition to commence or for carrying on of business; it may comprehend many other acts incidental to carrying on of business." Thus, any expenditure which is laid out for business which, in present case, consisted of distribution of channels and earning of subscription revenue, advertisement agency commission, etc., would be wholly and exclusively for purpose of business. 10.3. Whether expenditure was wholly and exclusively incurred or laid out for purpose of business or profession must be determined from angle and as per assessee's perspective and choice. It is subjective. What one assessee may want to incur, another may not like to incur same or similar expenditure. quantum may also differ and vary. Section 37(1) does not curtail or prevent assessee from incurring expenditure which he feels and wants to incur for purpose of business. Expenditure incurred may be direct or may even indirectly benefit business in form of increased turnover, better profit, growth, etc. As long as expenditure incurred is "wholly and exclusively" for purpose of business, Assessing Officer cannot by applying of his own mind, disallow whole or part of expenditure. Assessing Officer cannot question reasonableness by putting himself in arm-chair of businessman and assume status or character of assessee. However, exception can be created by statutory provision like section 40A(2), when Revenue as per statutory mandate may have jurisdiction to examine issue of price/consideration. For incurring advertisement expenditure, in relevant years, there were no statutory stipulations. 10.4. When expenditure is incurred for assessee's own business, mere fact that expenditure would inure or benefits third party or third party incidentally obtains some advantage, would not affect or distract from finding that expenditure was wholly and exclusively was for assessee's business. For example, retail trader may advertise different products which may incidentally benefit manufacturers but this does not mean that advertisement expenditure fails to meet requirement of "wholly and exclusively". Law in this regard is well settled. Relevant would be to refer to authoritative pronouncement of Supreme Court in CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601 (SC), observing (page 610): "In deciding whether payment of money is deductible expenditure one has to take into consideration questions of commercial expediency and principles of ordinary commercial trading. If payment or expenditure is incurred for purpose of trade of assessee it does not matter that payment may inure to benefit of third party (Usher's Wiltshire Brewery Ltd. v. Bruce 6 Tax Cas 399. Another test is whether transaction is properly entered into as part of assessee's legitimate commercial undertaking in order to facilitate carrying on of its business; and it is immaterial that third party also benefits thereby (Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC); [1951] SCR 594). But in every case it is question of fact whether expenditure was expended wholly and exclusively for purpose of trade or business of assessee. In present case, finding is that it was laid out for purpose of assessee's business and there is evidence to support this finding." In CIT v. Royal Calcutta Turf Club [1961] 41 ITR 414 (SC), Supreme Court followed earlier judgment in Chandulal Keshavlal (supra) to hold (page 418): "The question as to whether expenses of running school for jockeys is deductible has to be decided taking into consideration circumstances of this case. business of respondent was to run race meetings on commercial scale for which it is necessary to have races of as high order as possible. For popularity of races run by respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to owners and trainers because without such efficient jockeys running of race meetings would not be commercially profitable. It was for this purpose that respondent started school for training Indian jockeys... Therefore, any expenditure which was incurred for preventing extinction of respondent's business would, in our opinion, be expenditure wholly and exclusively laid out for purpose of business of assessee and would be allowable deduction. This finds support from decided cases. In CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601 (SC) this court held that in order to justify deduction disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for assessee's business; and if expense is incurred for purpose of for assessee's business; and if expense is incurred for purpose of business of assessee it does not matter that payment also enures to benefit of third party." In Sassoon J. David and Co. Pvt. Ltd. v. CIT [1979] 118 ITR 261 (SC) ; [1979] 3 SCC 524, Supreme Court has held (page 275 of 118 ITR): "The next contention urged on behalf of Department was that since Davids and Tatas were indirectly benefited by retrenchment of services of employees of company and payment of compensation to them and since there was no necessity to retrench services of all employees, expenditure in question could not be treated as expenditure laid out wholly and exclusively for business purposes of company. It has to be observed here that expression'wholly and exclusively' used in section 10(2)(xv) of Act does not mean'necessarily'. Ordinarily, it is for assessee to decide whether any expenditure should be incurred in course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting business and to earn profits, assessee can claim deduction under section 10(2)(xv) of Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to legislative history of section 37 of Income-tax Act, 1961, which corresponds to section 10(2)(xv) of Act. attempt was made in Income- tax Bill of 1961 to lay down the'necessity' of expenditure as condition for claiming deduction under section 37. Section 37(1) in Bill read'any expenditure...laid out or expended wholly, necessarily and exclusively for purposes of business or profession shall be allowed...' introduction of word'necessarily' in above section resulted in public protest. Consequently when section 37 was finally enacted into law, word'necessarily' came to be dropped. fact that somebody other than assessee is also benefited by expenditure should not come in way of expenditure being allowed by way of deduction under section 10(2)(xv) of Act if it satisfies otherwise tests laid down by law." As per findings recorded by Tribunal and Commissioner of Income-tax (Appeals), respondent-assessee was engaged in business of distribution of television channels and had retained 100 per cent. of subscription fee. As per agreement between respondent-assessee and associated enterprise, it was obligation and duty of respondent- assessee to advertise and promote channels. Similarly, assessee was acting as selling agent for advertisements to be aired on channels. It was entitled to retain 15 per cent. of gross receipts as income and pass on or transfer 85 per cent. of gross receipts to foreign enterprises. Thus, one of functions being performed by assessee was to advertise and promote channels and to earn subscription revenue. Another function was to secure/procure advertisements. assessee earned 15 per cent. commission for last mentioned function. assessee was earning revenue in view of said functions being performed. Expenditure incurred on advertisement was clearly relatable and laid out for purpose of business of respondent-assessee and was not extraneous or unconnected with same. Consequently, it could not have been disallowed as was done by Assessing Officer on ground that it was not laid out or incurred wholly or exclusively for purpose of business. Difference between expenditure incurred and price paid for functions performed Assessing Officer has failed to notice difference between expenditure incurred by assessee towards advertisement and publicity and price paid to assessee by associated foreign enterprise for services rendered, etc. first relates to expenditure or outgoing paid for business. second relates to income or price paid for transactions between respondent-assessee and associated enterprise and which would constitute international transaction. second aspect is linked and connected with income earned, i.e., price paid for service rendered, goods sold, etc. international transaction with associated enterprise can be subjected to transfer pricing adjustment under Chapter X of Act read with applicable rules by Transfer Pricing Officer by applying functions performed, risk assumed and asset deployed, criteria/principle. Transfer Pricing Officer is required to select appropriate method specified in section 92C of Act and determine/compute arm's length price. In present case, Transfer Pricing Officer did not make any adjustment and has accepted transfer pricing between respondent-assessee and related enterprises, i.e., compensation paid or retained by respondent-assessee in view of functions performed, risk assumed and asset deployed, etc. Once we hold that one of functions to be performed by respondent- assessee was to incur advertisement and promotion expenditure, then expenditure incurred for said purpose should be allowed under section 37(1) of Act, as incurred wholly and exclusively for purpose of said assessee. In such cases, as in present case, disallowance made by Assessing Officer treating advertisement expenditure as nonbusiness expenditure must fail and flounder. However, adequate compensation/price should be paid for same by associated enterprise, with reference to functions, risk and assets. In case, respondent-assessee was not being paid adequate consideration or compensated by its associated enterprise, necessary adjustments could have been made by Transfer Pricing Officer in accordance with Act. It is accepted position that Transfer Pricing Officer did not deem it appropriate and proper to make any adjustment in respect of these international transactions. price received by assessee for international transaction was accepted by Transfer Pricing Officer. In view of aforesaid discussion, it is held that advertisement and promotion expenditure was rightly treated, by Tribunal, as one of functions which respondent-assessee was mandated and required to perform for purpose of his business and would, therefore, be allowable as business expenditure under section 37(1) of Act. In view of aforesaid legal position, question No. 1 in all three appeals is answered in favour of respondent-assessee and against Revenue. Question No. 2 in I. T. A. Nos. 1297 of 2010 and 1101 of 2011 is also answered in favour of respondent-assessee and against appellant- Revenue. appeals are disposed of. No order as to costs. *** Commissioner of Income-tax v. Discovery Communication India