TMI Blog2005 (12) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... peal is preferred by the assessee under section 260A of the Income-tax Act, 1961 aggrieved by the order of the Income-tax Appellate Tribunal (hereafter called "the Tribunal") declining relief under section 37(1) of the Income-tax Act on the ground that the donation made by the assessee to the Malayala Manorama Charitable Trust is not a reasonable expenditure laid out or expended wholly and exclusively for the purposes of business by the assessee chargeable under the head "Profits and gains of business or profession". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk undertaken by the Malayala Manorama Charitable Trust for the purpose of rehabilitation and reconstruction of Banegaon Village devastated by earthquake, after constituting a fund by name Maharashtra Earthquake Relief Fund and making contribution to that fund is in no way connected with the business activities of the company. It was also pointed out that the expenditure incurred for the completion of the noble work undertaken at the behest of the trust, even if it has helped the assessee to get wide publicity 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 11 of the Act, any voluntary contributions received by it shall be deemed to be income derived from property held under trust wholly for charitable purpose. Counsel submitted, section 80G speaks of deduction in respect of donations to certain specified institutions whereas the provisions of section 37(1) speaks of expenditure laid out or expended wholly and exclusively for the purposes of business. Counsel submitted, the project relating to rehabilitation and reconstruction work is in no way connected 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,94,000 is now taking up the plea that it had incurred the expenditure wholly and exclusively for the purpose of its business so as to get benefit of section 37(1) of the Act. The facts would indicate that the trust which has taken up the project has no case that it has expended the amount for the promotion of the assessee's business. The contention of the assessee is that though the contribution made by the public as such was not spent wholly or exclusively by the trust for business purpose the contribution made 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 (n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to say the construction of houses for the victims was for business promotion but it was to help the victims of the massive earthquake. The trust is registered as a charitable trust within the meaning of the Income-tax Act and hence, the trust is entitled to get all the benefits of section 11 of the Income-tax Act. The funds have to be invested as per section 11 (5) of the Act. Every person in receipt of income derived from property held under trust has to give a return of income under section 139 (4A). The procedure 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts employees were studying. The Tribunal took the view that the assessee's contribution to the school was for the assessee's business purpose and allowed deduction thereof. On the facts the court took the view that the expenditure made by the assessee for the school was wholly and exclusively for the welfare of its employees as their children were studying in that school and therefore, took the view that the amount spent by the assessee was an allowable deduction under section 37(1) of the Act. We are of the view the abovementioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal that the claim under sections 80-I and 80-IA for deduction in respect of new undertakings of the assessee at Trivandrum and Palakkad stands covered against the assessee is not correct especially in view of the decision of this court in Malayala Manorama Co. Ltd. v. CIT [2002] 257 ITR 633. In that case the assessee claimed allowance of deduction with respect to its share of income from advertisement for the assessment years 1990-91 and 1991-92. This court took the view that the assessee is entitled to special deduction 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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