TMI Blog2019 (8) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... ive and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation u/s 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in respect of expenses being contribution / donation to educational institutions, trust, local bodies ? 3. The facts giving rise to this tax appeal be summarized as under : 3.1 The assessee-company filed its Return of Income for the A.Y. 2010-11 electronically with digital signature on 29/09/2010 declaring its total income at ₹ 293,22,38,330/-. Later, on 24/11/2011, the company filed its revised return declaring its total income to the tune of ₹ 292,11,96,415/-. The return of income filed was processed under Section 143(1) of the Act, 1961 accepting the total income as returned by the assessee-company. 3.2 The case was selected for scrutiny under the CASS and in such circumstances, a statutory notice under Section 143(2) of the Act was issued by the DCIT, Bharuch Circle, Bharuch dated 26/08/2011. Later, a notice under Section 142(1) of the Act was issued by the DCIT, Bharuch Circle, Bharuch on 11/07/2012. The case thereafter, was assigned to the Additional CIT, Bharuch Range, Bharuch by the CIT-III, Baroda vide order passed under Section 120 of the Act. Accordingly, a notice under Section 142(1) read with Section 129 of the Act, 1961 alongwith the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become responsible actors in society, so that their every action leads to sustainable growth and economic development. The then Minister of Corporate Affairs while addressing conference of Company Secretary at Kolkata had said that CSR is no longer charity or philanthropy; instead it should be imbibed in the corporate culture that leads to responsible business. Company has incurred the following expenses in fulfillment of its corporate social responsibility and has been claimed as deduction u/s 37 of the Income tax Act : Name of the Institution Particulars in Brief Amount in 1 Shramik Vikas Sansthan Cost of purchase of Amber Charkhas for tribal women under the scheme of Khadi Board. 70000 2 Shramik Vikas Sansthan For construction of Hostel for 50 boys and 50 girls at Bhekhadia village. 600000 3 Narmada Rural Development Society Contribution towards providing Potable Drinking Water in the Villages of Bharuch District. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndence Day by GOG at Rajpipla. 500000 15 Primary School Samani Dist. Bharuch To help the School by providing financial assistance for three Speaker, Gardening Implements, DVD Player for educational programme. 19000 16 Deppt. of Science and Technology Government of Gujarat Donation made to Deppt. Of Science and Technology Government of Gujarat for two KU Band V-SAT Van, through Bharati Airtel Limited 5327087 Total 175036756 It would be seen from above that contributions were made towards, social economical uplifment, education as also for providing medical relief to the needy persons. Such contributions, in view of its very nature are, allowable deduction in computation of its business income as held by various judicial authorities. From the aforesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee s business or which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(1) of the Act. iii) Income Tax Act also recognizes the need for making payment for discharging corporate social responsibility, or individual social responsibility. Provisions of section 80G of the Act encourage such payments payments made to specified organizations are eligible for deduction as per the said provision. If there is specific section for allowability of certain payment, then it overrules any general section. For making payment of donation there is a specific section 80G, therefore any donation paid otherwise than in conformity with section 80G would not be an allowable deduction, but would only be application of income. iv) The assessee has mainly relied upon the decision of Hon ble Gujarat High Court for the A.Y. 1996-97 wherein Hon ble High Court has allowed contribution made to NIRDES u/s 37(1) of the I.T. Act. Hon ble High Court has also relied upon decision of Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. V/s CIT. Wherein the Hon ble High Court has also considered submission of the assessee. Relevant portion of the said submission is as under : ....... actually the donation had been given to NIRDES as per order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f children, (vi) contribution to conferences on socio-economic issues, (vii) sponsorships of various programmes / events, (viii) contributions to various health projects of various organizations, (ix) contribution to independence Day celebrations by GOG, Rajpipla and (x) contribution to DST, Govt. of Gujarat for two satellites. The assessee has incurred total expenditure of ₹ 17,45,86,756/- and has claimed the same as deduction u/s 37(1) of the Act. Therefore, deduction u/s 37(1) can be allowed for any expenditure, for which deduction has not been allowed in section 30 to 36, which is not personal or capital in nature and which has been incurred wholly and exclusively for the purpose of the business of the assessee . The Assessing Officer has disputed that the expenditure to the tune of ₹ 17,45,86,756/- was not incurred wholly and exclusively for the purpose of the business of the assessee. The word wholly refers to the quantum of the expenditure and the word exclusively refers to the motive, objective and the purpose of the expenditure. It is clear that if the expenditure has been incurred for promoting the business and earn profit, even if in the long run, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial responsibility and makes contributions in the ordinary course of its business towards socially useful activities and in view of very nature the expenditure incurred for corporate social responsibility is allowable as business expenditure as it was incurred for making the image of the company and towards its social responsibility reliance placed on the decision of Apex Court in the case of Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 223 ITR 101 (SC) wherein contribution to the public welfare fund at the instance of the Government Authorities was allowed as the deduction on the ground that it was motivated by commercial contribution. Similarly, the Hon ble Jurisdictional High Court in the case of assessee in Tax Appeal No.770/1999 with Tax Appeal No.77 78/2008 dated 06.05.2011 has upheld the order of Tribunal wherein the Tribunal has upheld the contribution made to the Chief Minister Earth Quake Relief Fund and contribution to the State Government as business expenditure for A.Y. 1994-95 and 1995-96 by treating the case where in the nature of commercial expediency as allowable as a revenue expenditure. 36. In the light of the above, we find no infirmity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any error of law could be said to have been committed by the Appellate Tribunal in passing the impugned order. According to Mr.Shah, the Tribunal thought fit to rely upon its own decision in the case of the very same assessee for the Assessment Year 2009-10. Mr.Shah submitted that there was no good reason for the Assessing Officer and the CIT(A) to take a different view, more particularly, when the Appellate Tribunal had already allowed such claim for the Assessment Year 2009-10. Mr.Shah submitted that the principle of rule of consistency should have been adhered to by the Assessing Officer and the CIT(A). The Appellate Tribunal has correctly applied the principle of rule of consistency. In this regard, Mr.Shah has placed reliance on two decisions : (1) S.A. Builders Ltd. vs. CIT(A) Anr. reported in (2007) 288 ITR 1 (SC) and (2) CIT vs. Nainital Bank Ltd. reported in (1966) 62 ITR 638 (SC). 5.1 On the main issue as regards Section 37(1) of the Act, Mr.Shah has placed reliance on the following decisions : (1) CIT vs. Dhanrajgirji Raja Narasingirji, (1973) 91 ITR 544 (SC); (2) Sassoon J. David and Co. (P) Ltd. vs. CIT, (1979) 118 ITR 261 (SC); (3) Mysore Kirloskar Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no attempt should have been made to reopen the question. He relied upon some authorities in support of his stand. A full Bench of the Madras High Court considered this question in T.M.M Sankaralinga Nadar Bros. Ors, v. Commissioner of Income-Tax, Madras, 4 ITC 226. After dealing with the con- cession the Full Bench expressed the following opinion: The principle to be deducted from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated. 14. One of the decisions referred to by the Full Bench was the case of Hoystead Ors. v. Commissioner of Taxation, 1926 AC 155. Speaking for the Judicial Committee Lord Shaw stated: Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Ss. 11 and 12 of the Income Tax Act of 1961. 6.2 The aforesaid principle has been applied by the Delhi High Court in the following judgements : (1) Director of Income-tax (Exemption) v. Apparel Export Promotion Council 244 ITR 734; (2) CIT v. Neo Polypack 245 ITR 492; (3) CIT v. Allied Finance (P) Ltd. 195 CTR 528. 6.3 In the first of the above judgements, it was held that although the doctrine of res judicata did not strictly apply to the income-tax proceedings, yet in order to maintain consistency, the revenue cannot be permitted to rake up stale issues all over again merely because the scope of appeal is wider than the scope of reference. In this case, the assessee had been granted exemption under Section 11 for a long period of years and without there being any change in the objects or activities of the assessee, the income-tax authorities sought to deny the exemption in a later year. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the following cases : (1) Kaumudini Narayan Dalai (2) CIT v. Narendra Doshi (3) CIT v. Shiv Sagar Estate 6.7 The above judgements of the Supreme Court show the anxiety to prevent the income-tax authorities from taking different stands in the case of different assessee in respect of the same issue or taking different stands in the case of the same assessee for different assessment years in respect of the same issue. 6.8 The Supreme Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) observed as under : 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the question raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue. 29. In Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) this court did not think it appropriate to allow the reconsideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flipflop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sale of it. 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the sane in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediency would not bring the case within the ambit of Section 37(1) of the Act. It is submitted that the expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business. 7.1 At this stage, we may refer to the decision of the Supreme Court in the case of Amalgamations Pvt. Ltd. (supra), on which strong reliance is being placed by the learned counsel appearing for the Revenue. We may quote relevant observations : The amounts paid by the assessee-company to the directors of its subsidiary companies can be admissible as a deduction under s. 10(2)(xv) of the 1922 Act or s. 37(1) of the 1961 Act only if they can be regarded as expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee-company. This expression was also used in the IT Act, 1918 in U.K. In Atherton vs. British Insulated Helsby Cables Ltd. (1925) 10 Tax Cases 155 (HL), Viscount Cave, L.C., has thus explained the said expression : ..... a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst appellate authority and of the AO and so also the other materials placed before the Court. The respondent-assessee did not place any materials to show what was the exact nature of expenditure, incurred for community development, to be allowed under Section 37(1) of the Act. The only basis on which the expenditure claimed was that the factory is situated in backward area and they have incurred the expenditure, as indicated in paragraph 10, to discharge their social responsibility. In support, the respondentassessee placed reliance upon the judgment of the Madras High Court in Commissioner of Income Tax vs. Madras Refineries Limited (2004 Vol.266 ITR 170). 14. Mr.Rajesh Chander, learned counsel for the respondent-assessee, at the outset, invited our attention to the very same judgment of the Madras High Court and submitted that the concept of business is not static and it has evolved over a period of time to include 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. He submitted that the respondent-assessee being a good corporate citizen, in order to bring goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontributions were made to various religious functions, charitable institutions, social clubs and certain acts of charity such as donating a borewell to the Municipality, etc. The respondent-assessee has not placed any other materials on record in support of their claim of expenditure over community development, in other two appeals, so to apply the test of commercial expediency. 17. From plain reading of the order of the Assessing Officer and so also the order of the appellate authority in ITA No.68 of 2007, it appears to us that the expenses contributed for religious functions, charitable institutions, social clubs and charity such as donating a borewell to the municipality, etc. would not fall within the expenditure contemplated under Section 37(1) of the Act. Section 37(1) of the Act states that 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 . It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible thus in effect, though not in terms, negativing the Crowns contentions, I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply. 8.1 Thus, the aforesaid makes it clear that even if an expense is incurred voluntarily it may still be construed as wholly and exclusively . Explaining this principle, the Hon ble Supreme Court has, in the case of Sassoon J David Co. (P) Ltd. vs. CIT [(1979) 118 ITR 261 (SC)] inter alia observed that : It has to be observed here that the expression wholly and exclusively used in s. 10(2)(xv) of the Act does not mean necessarily . Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred volun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the business whereas, Section 57(iii) talks about the expenditure wholly and exclusively for the purpose of making or earning such income. 8.5 In CIT v. Malayalam Plantations Ltd, [1964] 53 ITR 140, the Supreme Court observed that the expression for the purpose for the business is wider in scope than the expression for the purpose of earning profits . Similar observation has also been made in CIT v. Birla Cottom Spg. And Wvg. Mills Ltd. [1971] 82 ITR 166, where the Supreme Court expressed the view that the expression for the purpose of the business is essentially wider than the expression for the purpose of earning profits . The decision in Malayalam Plantations has been freely drawn upon by courts for laying down that the provisions of s. 37(1) and similar provisions of s. 10(2)(xv) of the 1922 Act in which the expression for the purposes of the business is used, have wider implication than the provisions of s. 10(2) of the 1922 Act which used the words for the purpose of....... earning such.... profits and the provisions of s. 57(iii) in which the expression for the purpose of making or earning such income is used. (See for example, Padmavati Jaykrishna s ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing statute, the word business would signify an organised and continuous course of commercial activity, which is carried on with the end in view of making or earning profits. Under s. 37(1), therefore, the connection has to be established between the expenditure incurred and the activity undertaken by the assessee with such object. As against this, s. 57(iii) use the expression for the purpose of in conjunction with the words making or earning of income from other sources . The nexus thereunder must, therefore, be between the expenditure incurred and the income earned and not between the expenditure incurred and the activity which is the source of the income. [See Virmati Ramkrishna v/s Commissioner of Income-tax, Gujarat III, 1981 (131) ITR 659 ]. 8.7 We may refer to a decision of the Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1. The Court observed : While the basic requirements for invoking sections 37(1) and 80G are quite different , but nonetheless the two sections are not mutually exclusive . Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Refineries Ltd. [2004] 266 ITR 170 (Mad), the Madras High Court upheld the deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows : The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill .... 8.10 We have also noted that the amendment in the scheme of Section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under : It was urged by the Commissioner that the bank was under no legal liability to pay to the constituents the value of the jewellery pledged with it. It was said that the bank was, as a pledgee, a bailee of the jewellery and was in law required to take as much care of the pledged jewellery as a person of ordinary prudence would take under similar circumstances of his own jewellery of the same bulk, quantity and value, and the bank having provided an adequate number of watchmen, it was not liable for the loss of the property pledged. Granting that, on proof that it had taken as much care of the jewellery pledged with it as it would have taken if it belonged to it, the bank could enforce its rights and recover the full amount due from the constituents, the question still remains whether in admitting liability for the value of the jewellery pledged, the bank laid out expenditure for the purpose of the business. The question is not about the strict enforcement of the legal rights and obligations between the bank and its constituents. The sole question is whether the bank in incurring the expenditure acted in the interest of and for the purpose of its business. The bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with litigation are not separately dealt with under that provision. In our opinion, it makes no difference whether the proceedings are civil or criminal. All that the court has to see is whether the legal expenses were incurred by the assessee in his character as a trader, in other words, whether the transaction in respect of which proceedings are taken arose out of and was incidental to the assessee s business. Further, we have to see whether the expenditure in question was bona fide incurred wholly and exclusively for the purpose of business : see Commissioner of Income-tax v. Birla Cotton Spinning and Weaving Mills Ltd. It is true that in some of the cases this court has held that an expenditure incurred by an accused assessee to defend himself against a criminal charge did not fall within the scope of section 10(2)(xv). Those decisions were rendered on the facts of those cases. That is not eh position in this case. On the findings arrived at by the Tribunal, it is clear that the assessee had incurred the expenditure in question for the purpose of his business. The learned counsel for the revenue urged that there was no necessity for the assessee to incur that expenditure, as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the business and to earn profits, the assessee can claim deduction under s.10(2) (xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the I.T. Act, 1961, which corresponds to s.10(2)(xv) of the Act. An attempt was made in the I.T. Bill of 1961 to lay down the necessity of the expenditure as a condition for claiming deduction under s. 37. Section 37(1) in the Bill read any expenditure ... laid out of expended wholly, necessarily and exclusively for the purpose of the business or profession shall be allowed ....... The introduction of the word necessarily in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word necessarily came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s.10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this court in CIT v. Chandulal Keshavlal Co. [1960] 3 SCR 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily and on grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business. The above test in Atherton s case [1925] 10 TC 155 (HL) has been approved by this court in several decisions, e.g., Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601, etc. 25. In our opinion, the High Court as well as the Tribunal and other Income-tax authorities should have approved the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. 26. The expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. [1994] 208 ITR 989 (Bom.) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. 34. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. v. CIT [1995] 215 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the business or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be allowed . The introduction of the word necessarily in the above section resulted in public protest. Consequently, when section 37 was finally enacted into law, the word necessarily came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. Again, the words for the purpose of business used in section 37(1) should not be limited to the meaning of earning profit alone . Business expediency or commercial expediency may require providing facilities like schools, hospitals, etc., for the employees or their children or for the children of the ex-employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfies the other requirements, must be allowed as deduction under section 37(1) of the Act. It may also be stated, as observed by the Supreme Court in the aforesaid case, that the fact that somebody other than the assessee is also benefited or incidentally takes advantage of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 37, the assessee could claim it as an allowance in its entirty. The second reason given by the Tribunal is equally untenable. The establishment of the school was primarily to provide facilities for the education of the children of the employees and exemployees 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 under section 37(1). 9.6 In Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra) the appellant was engaged in the business of exporting rice from the State of Andhra Pradesh. Rice could not be exported without the permit from the District Collector. The permits were given only if the payment was made to a Welfare Fund which had been established. The Income-tax Officer disallowed the deduction by holding that the said payment was neither mandatory nor statutory but, was only discretionary. The Income-tax Officer further observed that the welfare fund had not been approved by the Commissioner of Income-tax un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason held that only a sum of ₹ 5 lakhs out of the sum claimed, was to be allowed as a deduction. On further appeal to the Tribunal, the Tribunal, after examining the records placed before it and having been satisfied that the money had in fact been spent in the manner claimed by the assessee, held that winning the goodwill of the people of the locality, helps in boosting the business in many ways. It allowed the entire amount claimed as a deduction. The concept of business is not static. It has evolved over a period of time to include 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. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said decision, also observed as follows : ... What is decisive is the nature of business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. 7. In the case reported in [1969] 72 ITR 137 (Mad) (CIT v. Ashok Leyland Ltd.) which was affirmed by the Supreme Court in [1972] 86 ITR 549 (CIT v. Ashok Leyland Ltd.), explaining the position of law, this court stated as follows (page 143) : The facts of each case, the attendant circumstances revolving around the expenditure, the aim, object and purpose of the same, their impact on the assessee, particularly in matters relating to the future of the assessee's trade and business, whether it could be sustained on ordinary canons of commercial expediency simpliciter, whether it is a step-in-aid of future expansion or prolongation of life of an existing business, whether it is to secure an enduring benefit, whether the expenditure constitutes conceivable nucleus to form the foundation for the posterior profit earning, whether the expenditure could be viewed as an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution 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 section 137 have to be viewed in a very strict manner. It may be noted that section 137 itself is concerned with an expenditure laid out or expended wholly or exclusively for the purpose of the business or profession to qualify for deduction. With the necessity no longer a valid test, we reject the Revenue's appeal. 9.10 In Vatika Township P. Ltd. (supra), the Supreme Court held as under : 31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association [2005] 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a stature was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 289. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here. 10. Thus, the sum and substance of the principle discernible from the above noted decisions is that the concept of business is not static. It has evolved over a period of time to include 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. The assesseecompany in the case on hand is engaged in the business of manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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