Orissa High Court
Commissioner Of Income-Tax vs Industrial Development Corporation Of ... on 3 August, 2000
Equivalent citations: [2001]249ITR401(ORISSA)
Author: P.K. Misra
Bench: P.K. Misra
JUDGMENT R.K. Patra, J.
1. The Income-tax Appellate Tribunal, Cuttack Bench, Cut-tack, pursuant to an order made by this court under Section 256(2) of the Income-tax Act, 1961, has drawn up the statement of the case and referred the following question of law for the opinion :
"Whether, on the facts and in the circumstances of the case, donation of Rs. 1,00,000 made by the assessee to the Chief Minister's Relief Fund was allowable as a business expenditure under Section 37 of the Income-tax Act, 1961 ?"
Facts :
2. The opposite party is a State Government Corporation.
3. For the assessment year 1983-84, it donated a sum of rupees one lakh to the Chief Minister's Relief Fund and claimed deduction of that amount from its total income. The Assessing Officer disallowed the claim which was confirmed in appeal by the Commissioner of Income-tax (Appeals). Being aggrieved by the aforesaid order, the opposite party preferred a second appeal before the Income-tax Appellate Tribunal contending that the amount donated to the Chief Minister's Relief Fund was allowable under Section 37 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The Tribunal in its order dated November 30, 1989, after setting out the contentions of the opposite party held as under :
"For the assessment year 1983-84, the item in dispute is a sum of Rs. 1,00,000 being donation to the Chief Minister's Relief Fund which the assessee claims must be allowed under Section 37. After hearing the Revenue, I find these claims of the assessee which are now taken by way of additional grounds, have to be upheld because Section 80G has no application to these facts and these deductions are admissible under the provisions of Sections 37 and 35(1)(ii), respectively. The Income-tax Officer is directed to allow deduction of these expenditure in computing the income."
4. Sub-section (1) of Section 37 of the Act deals with deduction of all expenditure wholly and exclusively laid out or expended for the purposes of the business of the assessee where such expenditure is not expressly covered by any other specific provision of the Act. In other words, in order to be eligible as "deductible expense", the amount in question must fulfil two essential conditions : (1) the expenditure must be laid out wholly and exclusively for the purpose of the business or profession ; and (ii) the expenditure must not be capital in nature. Unless the assessee satisfies both these conditions, the deduction is not allowable.
5. The law relating to deducibility of expenses for the purposes of the business is now well settled. In Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 191 (HL), Viscount Cave L. C., speaking for the majority in the House of Lords, held as follows :
"It was made clear in the above cited cases of Usher's Wiltshire Brewery Lid. v. Bruce [1914] 6 TC 399 (HL) and Smith v. Incorporated Council of Law Reporting for England and Wales [1914] 6 TC 477 (KBD) that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade ; . . ."
6. The aforesaid test has been followed with approval by the Supreme Court in a number of decisions, such as CIT v. Chandulal Keshavlal and Co. (1960] 38 ITR 601 and CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549.
7. In CIT v. Industry and Commerce Enterprises (P.) Ltd. [1979] 118 ITR 60G, the question arose before this court as to whether the loss sustained by the assessee out of sale of Government loan bonds was capital loss or revenue loss. The plea of the assessee was that it became necessary to purchase Government loan bonds with a view to increasing its business with the State Government. The Income-tax Appellate Tribunal found as a fact that the business secured by the assessee was as a result of purchase of securities. This court accordingly held that the loss sustained by the assessee on the sale of Government loan bonds was a revenue loss. The aforesaid decision was approved by the Supreme Court in Patnaik and Co. Ltd v. CIT [1986] 161 ITR 365. In Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365 (SC), the assessee claimed a loss of Rs. 53,650 sustained by it on disposing of its subscription to the Orissa Government Floated Loan, 1972. According to the assessee, the said loss being a revenue loss, it was deductible from its profits for the year. The Appellate Tribunal found that the asses-see was told that if it subscribed to the Government loan, preferential treatment would be granted to it in the placing of orders for motor vehicles required by different Government Departments. The Tribunal also found that the investment in the purchase of Government bonds was made to boost its business and such investment was made by way of commercial expediency for the purpose of carrying on its business. Therefore, the loss suffered by the assessee on the sale of the bonds must be regarded as a revenue loss. This court re-examined the facts of the case and found that the investment was not connected with the orders placed by the Government with the assessee and accordingly held that the investment in the loan was a capital asset and the loss was a capital loss. The Supreme Court in appeal reversed the decision of this court and held that the investment did not bring in an asset of a capital nature and that the loss suffered by the assessee was a revenue loss and not a capital loss.
8. In Sri Venkata Satyanarayana Rice Mill Contractors Co v. CIT [1997] 223 ITR 101 (SC), the assessee was carrying on business of exporting rice from the State of Andhra Pradesh after obtaining permits from the District Collector. The permits were, however, given only after contribution at the rate of 50 paise per quintal of rice was made to the Andhra Pradesh Welfare Fund which was established pursuant to the scheme framed by the Rice Millers' Association in consultation with the District Collector. The question arose whether such contribution/payment was deductible under Section 37(1) of the Act. The Supreme Court held that in the absence of any prohibition in law in making such contribution, the assessee cannot be denied deduction of that amount under Section 37(1) of the Act when such payment was made for the purpose of his business.
9. From a conspectus of the ratio of all the aforesaid cases, it follows that if an assessee makes a contribution to a public welfare fund which is directly connected with or related to the carrying on of his business or which results in benefit to his business it has to be regarded as an allowable deduction under Section 37(1) of the Act.
10. Let us now pass on to the facts of the case at hand. The opposite party is a State-owned Corporation which donated a sum of rupees one lakh to the Chief Minister's Relief Fund. The onus of proof that a, particular expenditure laid out or expended for the purpose of his business is on the assessee. Since the party claims entitlement of deduction, it is for it to adduce necessary evidence to show that the payment made by it was with a view to secure benefit to its business. There is nothing on record to establish that the donation of the amount to the Chief Minister's, Relief Fund was directly connected with and related to carrying on its business. No such finding has also been recorded by the Tribunal. As the opposite party has failed to lay necessary factual matrix for its entitlement to deduction, the question has to be answered in favour of the Revenue which we do as follows :
"On the facts and in the circumstances of the case, donation of rupees one lakh made by the opposite party to the Chief Minister's Relief Fund is not allowable as a business expenditure under Section 37(1) of the Act."
11. The reference is, accordingly, disposed of.
P.K. Misra, J.
12. I agree.