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2018 (12) TMI 762 - HC - Income TaxAllowability of “project expenses” - deduction u/s 37 - The expenditure incurred to carry out social and economic development for the village poor - Held that:- The object and purpose of the respondent-assessee is to engage and work for social and economic upliftment of the rural poor, construct water reservoirs etc. It is established for this purpose and receives grants and donations from third parties with the said objective and purpose. M/s Indian Farmers Fertilizer Cooperative Ltd. had sold and supplied fertilizer that was marketed/sold by the assessee to earn profit/income, because the assessee was engaged in social and economic development activities. The expenditure incurred to carry out social and economic development would in this background constitute a ‘business’ or ‘commercial’ activity undertaken by the assessee. It would be a contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency. Under section 37 it does not matter whether or not the expenditure was in the nature of donation or Section 80G of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the assessee was established cannot be disallowed as expenditure not relatable and incurred for ‘business’ purposes. On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created were for third party villagers. The assessee was not the owner of the assets created and developed. The assets created were not capital assets in the hands of the assessee. The assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurred therefore would not be ‘capital’ in nature in the hands of the respondent assessee. - decided against revenue
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