TMI Blog2008 (6) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Rs. 29,51,991 to the Chief Minister's Relief Fund in response to appeal made by the Finance and Revenue Department, Government of Gujarat (GOG in short). The assessee claimed the same as 100 per cent deduction of this amount being donation in kind to the Chief Minister's Relief Fund of GOG. In support of its claim, the assessee-company produced a receipt of donation issued by the section officer, Gujarat State Revenue Department dt. 15th Oct., 2001 along with a certificate of chartered accountant. During the course of assessment proceedings, the AO required the assessee-company to furnish its explanation as to how donation in kind was allowable as deduction under s. 80G of the Act. In response to the same, the assessee filed written submission dt. 12th Nov., 2003, which is reproduced in the assessment order as under: "During the year, the company had made payment of Rs. 29,91,991 to the Chief Minister's Relief Fund in response to the appeal made by Shri Vajubhai Vala, Minister of Finance and Revenue, Government of Gujarat dt. 7th March, 2003. The above-mentioned amount was paid because Gujarat State was reeling under severe drought and it was feared that one of the most im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -fodder, paddy and paral grass instead of paying money directly to the Chief Minister's Relief Fund. In view of these facts, the AO relying on Expln. 5 to s. 80G of the Act disallowed the claim of the assessee and denied deduction by giving the following finding, which reads as under: "In the given circumstances, I am beseech to hold that the donation of Rs. 29,51,991 do not qualify for deduction under s. 80G of the Act because it is not a donation by way of some money, but it is a donation in kind. I, therefore have no option but to disallow the claim. Accordingly, the claim of deduction under s. 80G of the Act amounting to Rs. 29,51,991 is hereby disallowed. It is pertinent to take note of the facts that the Hon'ble apex Court has set at rest the issue in respect of donation in kind. Meaning thereby the donation in kind is not an allowable deduction under s. 80G of the Act." Aggrieved, the assessee preferred appeal before CIT(A). The CIT(A) after considering the argument of the assessee, confirmed the disallowance vide his appellate order paras 3.10 and 3.11, which read as under: "3.10 After the perusal of reply as made by the Authorised Representative of the appellant-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed the same under s. 30. In this case based on such facts, the Hon'ble Court has held that though it was not allowable under s. 30 of the Act, keeping in view of the element of commercial expediency, it was required to be deducted under s. 37 of the Act. Thus, the ratio in the above referred case is totally different than the issue involved in the case of the appellant-company and hence, it is not applicable at all. Thus, it is seen that the case laws cited by the learned Authorised Representative in support of its contention and also the arguments submitted during the appellate proceedings relating to the allowability of the claim of the appellant-company, I am of the view that same is not tenable and acceptable in the eyes of law although it was incurred for noble cause. I, therefore, dismiss this ground of appeal and confirm the addition as made by the AO." Aggrieved, the assessee came in appeal before us. 5. The learned counsel for the assessee argued that the assessee-company paid the amount of donation by cheques as per direction of GOG to suppliers of grass fodder etc., under the supervision of agencies designated by GOG. He, further stated that the purchase of fodde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He argued that the alternate plea of the assessee that this expenditure be allowed under s. 37(1) being expenditure incurred for commercial expediency cannot be allowed reason being that this is not a business expenditure incurred wholly and exclusively for the purpose of assessee's business. He relied on the case law in the case of H.H. Sri Rama Verma vs. CIT (1991) 95 CTR (SC) 26 : (1991) 187 ITR 308 (SC) where the Hon'ble apex Court has held as under: "It appears that, in view of the conflicting opinions expressed by the various High Courts, Parliament intervened and added Expln. 5 to s. 80G by the Finance Act, 1976, Expln. 5 reads as under: For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money. After the insertion of he aforesaid Explanation, there cannot be any doubt that for purposes of claiming deduction, only cash amounts which may have been donated would be taken into account. No doubt this provision is not retrospective in nature; nonetheless it indicates the legislative intent behind s. 80G(2)(a) even prior to its amount." And the learned Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n kind. 8. But now, we have to consider the alternative claim of the assessee, whether the assessee is entitled for deduction under s. 37(1) of the Act, of donation made in lieu of appeal made by the GOG as the abovementioned amount was paid because Gujarat State was reeling under severe drought and one of the most important assets of the poor people of Gujarat i.e., cattle would be lost which would result in permanent loss to a large number of farmers and others, whose dependence on cattle were substantial. The company made payment to suppliers, who gave fodder directly to various cattle camps as directed by the GOG. The assessee-company paid this amount on the direction of GOG for keeping smooth relation with the Government as enlightened industrialists. Whether this expenditure made on the direction of GOG can be considered as expenditure for business expediency and allowable under s. 37(1) of the Act or not. For this, now we have to go through the case law referred by both the sides. The case law referred by the learned counsel for the assessee in the case of Mysore Kirloskar Ltd. vs. CIT (1987) 61 CTR (Kar) 265 : (1987) 166 ITR 836 (Kar) where the Hon'ble High Court has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... futuro which, for the time being, is only contingent. The former is deductible but not the latter. In the light of these principles, we may again revert to the reasons given by the Tribunal for rejecting the claim of the assessee. The first reason given by the Tribunal is that s. 80G is a special provision and if it applies to the assessee's case, then s. 37, which is a general provision, stands excluded. This reason appears to be not sound. We have stated that s. 80G and s. 37 are not mutually exclusive. If the sum claimed by way of deduction even if it is a donation, could be considered as an expenditure falling under s. 37, the assessee could claim it as an allowance in its entirety. The second reason given by the Tribunal is equally untenable. The establishment of the school was primarily La provide facilities for the education of the children of the employees and ex-employees of the assessee. Any expenditure incurred in connection therewith could be claimed as deduction. Merely because some children other than those of the employees and ex-employees are also admitted to the school, the expenditure incurred in connection with the activities of the school cannot be disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located, in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill.' The facts in this case before us stand on a stronger footing, since the contribution made by the company is for the chamber of commerce whose activities are closely linked with the welfare of the corporate entities who are members therein and whose interest are taken care of by the chamber of commerce, irrespective of whether the expense incurred is compulsory or otherwise, Hence, considering the fact that the payment is made for the purpose of the business, it satisfies the commercial expediency test to accept the case of the assessee. In the circumstances, we do not find any justification to accept the case of the Revenue that the provisions of s. 37 have to be viewed in a very strict manner. It may be noted that s. 37 itself is concerned with 'an expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 31st March, 1969. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion was in error in upsetting the said view of the Tribunal." 11. In view of the above facts of the case, the case laws of Hon'ble apex Court as well as of Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
