TMI Blog2003 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant, Additional Commissioner of Income-tax, Udaipur, has filed this appeal under section 260A of the Income-tax Act, 1961, against the order dated November 9, 1998 passed by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, stating that the following substantial question of law arises for consideration in this appeal: "Whether, on the facts and circumstances of the case, the Tribunal was right in allowing the claim of expenditure to the rune of Rs. 15 lakhs as covered under section 37(1) of the Act when the contribution was clearly hit overriding section 40A(9) of the Act?" In the question referred to above, reference to section 40A(9) has apparently been made under misapprehension. Section 40A(9) applies only in such cases when the question arises about any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860, or other institution. Apparently, sub-section (9) of section 40A can only be pressed when such sum is paid by any assessee in his capacity as an employer which means that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies as per the criteria decided by the trustees. In pursuance of this stipulation, the assessee-company contributed a sum of Rs. 15 lakhs to the fund. The Tribunal also found that during the assessment years 1988-89 to 1991-92, the assessee-company has received different amounts by way of subsidy on the basis of its export sales. In these circumstances, the Tribunal found that in order to augment its own export sales and give competitive edge to its marketing, the assessee-company has contributed to the fund in its own business expediency, firstly, with the objects of increasing opportunity of exports of goods manufactured by it and secondly, to earn the subsidy. The assessee has been successful in its objects, which led to the participation in the fund. In view thereof, the Tribunal did not agree with the finding of the Commissioner of Income-tax that the expenses incurred by the assessee were not wholly or exclusively for its business purpose. The Tribunal also referred to the decision of the Supreme Court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 wherein the court had said that the expression "wholly or exclusively" cannot be equated with "necessarily" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 925] 10 TC 155 (HL), it was observed by Viscount Cave L.C. as under: "a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade." The principle was quoted with approval by the Supreme Court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 and CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601; AIR 1960 SC 738. In Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 the Supreme Court quoted with approval the principle stated by Viscount Cave L.C. in Atherton's case [1925] 10 TC 155 (HL) and further said: "It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned". The Supreme Court again explained in CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 that the true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of permit for exporting gulabi chana or pulses out of the State can be allowed as revenue expenditure under section 37(1). The assessee had claimed deduction of such contribution to the Chief Minister's Drought Relief Fund as revenue expense laid out wholly and exclusively for its business. The Assessing Officer disallowed the claim under section 37 by treating it to be a donation. The Tribunal allowed the claim of the assessee by holding that such voluntary donation was in the business expediency for the advancement of the assessee's business interest, hence the entire contribution was allowable under section 37(1) of the Income-tax Act. A Full Bench of the Madhya Pradesh High Court held that in the case before it the donations, which were made by the traders, did not contravene any law nor were the donations made as a penalty for infraction of any law. The merchants had made donations to the Chief Minister's Drought Relief Fund as a matter of commercial expediency to facilitate the obtaining of permits which were necessary for carrying on the export trade. The nature of expenditure was such that benefit to a third party or charity had resulted but that did not disqualify it fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of the business of the assessee because the benefit of the fund is shared by others. All the three grounds independently or cumulatively are not germane for holding the expenses to be not wholly and exclusively for the purpose of the assessee's business. It is now well-settled as discussed above that it is not necessary that the benefit of the expenses should flow to the business of the assessee directly or immediately. The principle in Atherton's case [1925] 10 TC 155 (HL), as approved by the Supreme Court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 and other cases lays this down firmly. It is also not necessary to show that the expenses were not profitable or no benefit is actually derived. Nor does the voluntary nature of the expenditure take it out of the purview of section 37(1) if it had nexus with the advancement of the assessee's business and the assessee is motivated to incur the expenditure for advancement of such interest. The receipt of actual benefit is also not necessary. It is not in dispute that the assessee is a manufacturer of textiles. The fund is set up to promote export of textiles and other products, manufactured by the Bhilwara group of indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take part in enquiries and to participate in conferences in India or abroad which have a hearing on the objects of the trust fund and to incur expenses in connection therewith, (f) to promote and finance research with a view to promoting the exports of approved products, (g) to incur expenses for carrying on propaganda/publicity in India or abroad, (h) to encourage and finance research and technical development of plant, machinery, products and process with a view to promoting exports more particularly in the following areas: (i) ultra high power graphite electrodes, (ii) graphite specialities and other allied carbon products, (iii) knitwears, (iv) worsted fabrics and/or garments, (v) mill-made cotton or polyster cotton fabrics, (vi) such other products of the Bhilwara group as may be decided by the trustees from time to time, (i) ... (j) to establish export houses in India and abroad for promotion of approved products, (k) to undertake or promote any other activity incidental or germane to the aforesaid objects. None of the objects can be said to be unrelated to the business activities of the assessee or without any nexus to the interest of the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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