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TMI Blog2005 (12) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ofession". The appellant-Malayala Manorama Company Ltd. is engaged in the business of printing and publishing of newspapers and periodicals and is an assessee on the files of the Additional Commissioner of Income-tax (Assessment), Special Range, Kottayam. The company submitted its return on November 30, 1994, for the assessment year 1994-95 declaring a total income of Rs. 1,82,42,750. In terms of the proviso to section 143(2) of the Income-tax Act, the case was selected for scrutiny by issue of a notice under section 143(2). Details were called for with regard to deduction of Rs. 26,94,000. Reply was sent stating that deduction relates to the amounts spent for reconstruction of Banegaon Village in Lathur District, Maharashtra, under section 37(1) of the Income-tax Act which was originally claimed as deduction under section 80G of the Income-tax Act. The assessee-company had originally claimed a deduction of Rs. 9,60,144 under section 80G on the qualifying amount of Rs. 26,94,000. Later the assessee through its counsel submitted a letter dated June 27, 1996, staring that even though the deduction was claimed under section 80G, it was really allowable under section 37 of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would not bring the expenditure within the ambit of section 37(1) since that is not an expenditure incurred wholly and exclusively for business purposes. An appeal preferred by the Revenue was accordingly allowed and the order of the Commissioner was set aside. The assessee is aggrieved by the order of the Tribunal and has filed this appeal. Sri M. Pathrose Mathai, senior counsel appearing for the assessee, submitted that the expenditure incurred by the assessee was for a noble cause which resulted in the trust undertaking the work of reconstruction and rehabilitation of the earthquake victims in the Banegaon Village of Lathur District in Maharashtra which helped the assessee to get wide publicity. Hence the expenditure made is liable for deduction under section 37(1) of the Income-tax Act. Counsel also submitted, the efforts made by the assessee paved the way for its business promotion since it gave wide publicity in the media which enhanced the prestige of its publication in the media and elsewhere. Counsel also submitted, the commercial expediency of the assessee's decision to incur the expenditure cannot be tested on the touch stone of strict legal liability to incur such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee's business purpose and therefore, the expenditure in question cannot be regarded as an allowable deduction under section 37(1) of the Act. Counsel made reference to the decision of the apex court in Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735. We are in this case primarily concerned with the question as to whether the assessee is entitled to claim deduction under section 37(1) of the Income-tax Act for the contribution made by it to the Malayala Manorama Charitable Trust. The facts would indicate that Malayala Manorama Charitable Trust was constituted with the support of the assessee with the following objects: "to grant relief and aid to the persons affected by natural calamities, provisions for shelter, clothing and food to the poor and needy, to render medical aid to the poor, to establish and maintain rooms and other establishments for the relief of the poor and to assist similar establishments." The trust constituted a fund by name Maharashtra Earthquake Relief Fund. The assessee-company contributed an amount of Rs. 26,94,000 to the relief fund. General public which included the well wishers of the assessee contributed an amount of Rs. 2,39,49,000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was wholly and exclusively for business purpose. The question that is posed is whether contribution made by the assessee was wholly and exclusively for its business purpose. We may point out, the assessee had originally claimed deduction of Rs. 9,60,144 under section 80G on the qualifying amount of Rs. 26,94,000. Subsequently by letter dated June 27, 1996, they raised a plea that even though deduction was claimed under section 80G it is really allowable under section 37(1) of the Act. Let us examine the scope of section 37(1) of the Income-tax Act as amended. The said provision is extracted below for easy reference: "37. General.-(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'." Expenditure laid out or expended wholly and exclusively for the purpose of business or profession alone shall be allowed in computing the income chargeable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for registration is provided under section 12AA of the Income-tax Act. The contribution made to the trust by the assessee or general public is also entitled to get the benefit of section 80G since it is a contribution for charitable purposes. Section 2(15) defines "charitable purposes". The assessee's contribution of Rs. 26,94,000 would qualify for exemption under section 80G. In fact a deduction of Rs. 9,60,144 was granted under section 80G on the qualifying amount of Rs. 26,94,000. We are of the view that that would be the only benefit which the assessee is entitled to get and not the benefit under section 37(1) of the Income-tax Act. Counsel for the assessee placed considerable reliance on the decision in Madras Refineries' case [2004] 266 ITR 170 (Mad). That was a case where the Madras Refineries Ltd. provided funds for establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the benefit of the children of those local residents. The company incurred an expenditure of Rs. 15,32,000 for that purpose. The Assessing Officer declined to allow that expenditure on the ground that it was not an item of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovementioned decisions are not applicable to 15 the facts of this case and to some extent we differ from the decision in Madras Refineries Ltd.'s case [2004] 266 ITR 170 (Mad). We have already pointed out on the facts the amount contributed by the assessee to the relief fund was not utilised wholly or exclusively for its business purpose. The mere fact that indirectly the assessee earned goodwill of the victims and the general public does not mean that the expenditure incurred by the assessee was wholly or exclusively for business purpose. Section 37(1) would apply only in a case where expenditure is laid out or expended wholly or exclusively for the purpose of the assessee's business. The amount contributed by the assessee in the present case may bring goodwill or enhance reputation of the assessee among the general public as a good philanthropist and in that process it may boost its business. But that by itself would not be sufficient to claim any deduction under section 37(1). The burden is entirely on the assessee to establish that the amount laid out or expended by the assessee was wholly or exclusively used for the purpose of its business. We have already indicated the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 80-I of the Act. Counsel submitted, though this decision was specifically pointed out before the Tribunal, the Tribunal failed to consider the same. Counsel appearing for the assessee also claimed deduction of the expenditure spent by its executives in the clubs so as to boost the assessee's business. Counsel contended expenditure laid out was exclusively for the purpose of business and hence was an allowable deduction. Counsel also pointed out that the said issue is covered by the decision in Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 (Bom). Counsel submitted, that point was also not properly considered by the Tribunal. Counsel therefore submitted that in the light of the abovementioned decisions those claims are liable to be allowed by this court. Learned counsel appearing for the Revenue on the other hand, contended that if it is a case of non-consideration then the matter has to go back to the Tribunal and this court without any factual foundation cannot finally adjudicate those claims. We find force in the contention of counsel for the Revenue. Under such circumstance we are inclined to uphold the order of the Tribunal disallowing the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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