TMI Blog2020 (8) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... iness expenditure allowable u/s 37(1). Therefore, by respectfully following the decision of Hon ble High Court of Karnataka, we are of the considered view that expenditure incurred under the head Social Welfare Expenditure for construction of houses to flood victims is in the nature of expenditure incurred wholly and exclusively for the purpose of business and deductible u/s 37(1) of the Act. Hence, we direct the A.O. to delete additions made towards disallowance of social welfare expenditure. - Decided in favour of assessee. - ITA No.1889/Bang/2016 - - - Dated:- 21-8-2020 - Shri N.V. Vasudevan, Vice President And Shri G. Manjunatha, Accountant Member For the Appellant : Shri B.S. Balachandran, A.R. For the Respondent : Shri Priyadarshi Mishra, D.R. ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against order of the CIT(A) Gulbarga dated 31.8.2016 and it pertains to the assessment year 2011-12. The assessee has raised following grounds of appeal: 1. The orders of the Lower Authorities are opposed to the facts of the case and law, and therefore liable to be a sit-aside and cancelled. 2. The Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds construction of houses for flood victims on account of major flood affected in several parts of Karnataka in the year 2009 in accordance with rehabilitation measures undertaken by Government of Karnataka and in this regard an MOU was entered into with Government for allotting the rehabilitation works to be executed by us on our cost. The assessee further submitted that as per the terms of MOU, the assessee needs to construct rehabilitation houses for flood victims by own cost and hand over the houses to the flood victims. The assessee further claimed that as per the said MOU, the donations given to the Chief Minister Relief Fund is to be said to be eligible for exemption u/s 80G of the Income-tax Act,1961 ['the Act' for short]. But, since the assessee has not received the exemption u/s 80G of the Act, it has claimed the amount incurred for social welfare expenditure as expenditure incurred wholly and exclusively for the purpose of business and also out of commercial expediency, which is deductible u/s 37(1) of the Act. 3. The A.O. after considering relevant submissions of the assessee and also taken note of MOU between the assessee and Government of Karnataka dated 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R activities is not for the purpose of business and hence cannot be allowed as deduction for computing income under the residuary provisions of section 37(1) of the Act. Accordingly, he opined that there is no error in the findings recorded by the Ld. A.O. while disallowing social welfare expenditure. Aggrieved by the CIT(A) s order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee, at the time of hearing submitted that the issue is squarely covered in favour of the assessee by the decision of Hon ble Karnataka High Court in the case of Kanhaiyalal Dhuderia Vs. JCIT (2020) 113 Taxmann.com 217 where under identical set of facts, the Hon ble High Court held that expenditure incurred for construction of houses to rehabilitate flood victims would be in the realm of business expenditure allowable u/s 37 of the Act. The A.R. further submitted that the facts of the present case are similar to the facts considered by the Hon ble High Court and further the assessee has also incurred expenditure for construction of houses to rehabilitate flood victims and accordingly, the A.O. as well as the Ld. CIT(A) were erred in disallowing social welfare expenditure incurred f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind, when the facts on hand are examined, it would clearly indicate that assessee has incurred the expenditure towards construction of 169 houses for the villagers who had lost their home due to natural calamity. In order to cater to the needs of those destitute persons who had lost the roof over their head on account of natural calamity, assessee constructed the houses by expending the amount. However, assessing officer and the authorities have held that it was not incurred for the purpose of business. One glaring factor which cannot go unnoticed is, that a MOU came to be entered into by the appellant on 01.12.2009 with the Government of Karnataka, as already noticed herein above, whereunder assessee agreed to construct houses to rehabilitate the flood victims at the earliest possible time and for undertaking the said task, the appropriate Government provided the assessee the land free from encumbrances, upon which the construction of houses came to be commenced, executed and handed over within the time limit agreed to under the MOU. It was the term of the MOU that the donor (assessee) has joined hands with the Government of Karnataka to bring a total relief in the, lives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s business cannot be regarded as payment opposed to public policy. It came to be further held making of a donation for charitable or public cause or in the public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under Section 37(1) of the Act, when such payment has been made for the purposes of assessee's business. In fact, it can be noticed under the MOU in question which came to be entered into by the assessee with Government of Karnataka was on account of the clarion call given by the then Chief Minister of Karnataka in the hour of crisis to all the Philanthropist, industrial and commercial enterprises to extended their whole hearted support and the entire logistic support has been extended by the Government of Karnataka namely, providing land and design of the house to be constructed, approval of layout and to take care of all local problems. In fact, the State Government had also agreed to exempt such of those persons who undertake to execute the work from the purview of sale tax, royalty, entry tax and other related State taxes and is said to have extended to the appellant also. In this bac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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