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TMI Blog2009 (9) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... nment undertaking with 80 per cent of the shares held by the Kerala Government. The respondent company located in Trivandrum is engaged in manufacture and sale of Titanium Dioxide. Being a Government company, it is under the control of the Government and its Board of Directors is also constituted with the Government nominees including Government Secretaries. The company is located in the extensive land leased from the Government on a paltry lease rent. Besides this, the Government is rendering a lot of services and incentives by way of reduction of sales tax for marketing the products of the company whenever there is slump in the market. In consideration of the services rendered by the Government, the State Government issued Government Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running of the company, the Assessing Officer turned down the claim by holding that the claim is not allowable under section 37(1) of the Income-tax Act. Against the revised order issued by the Assessing Officer declining to allow the deduction, the assessee filed another appeal along with appeals against the regular assessments for subsequent years before the first appellate authority who allowed the claim. On second appeals filed by the department, the Tribunal confirmed the orders of the first appellate authority and dismissed the appeals. It is against these orders the revenue has filed these eleven appeals. 2. We have heard Senior Counsel Sri P.K.R. Menon appearing for the appellant and have gone through the orders of the Tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral.-(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2)****** (2B) Notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made payment of service charges to the Government in terms of the Government Order. Therefore, the claim of deduction has to be considered with reference to the peculiar circumstances of the company which has no discretion in regard to the payment of the service charges to the Government as it is bound to comply with the Government Orders. So much so, we are of the view that the parameters applicable in the case of a private company that too with respect to the claim for business expenditure, are exactly not applicable in the case of public sector company whether it is under the control of the State Government or Central Government. In fact, many public sector companies are not formed just to make profit alone but are supposed to achieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government but mainly for the sacrifices and incentives provided by the State to the company. Even though the Tribunal has extracted the entire details in its order, we do not think it necessary to repeat the whole of it. However, we proceed to consider some of the services rendered by the Government to the company. In the first place, all policy decisions of the company are taken by the Government. For instance, when the company was closed on alleged pollution, the State Government intervened and meetings were held to find out solutions to the problem and appointed a committee to inquire into the pollution problems and the company was started after several months based on enquiry report submitted by the Committee and after the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of sacrifices to its revenue by way of reduction or exemption for sales tax when the company finds it difficult to market the products. In fact, the Tribunal has worked out the sacrifices made by the Government at crores of rupees. Further, we notice from the Tribunal's order that in respect of other companies under the control of the Government, the Government is charging various charges for their services in some cases based on turnover income and in certain cases based on quantity produced. On the whole, we find from the Tribunal's order that the successful management of the company is mainly on account of the control and patronage from the Government. Therefore, the demand of payment of service charge is essentially a business exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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