TMI Blog2021 (9) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... g an individual, and not a corporation under the Companies Act, 2013, Explanation 2 to section 37 cannot be applied so as to deny the voluntary expenditure incurred by assessee towards community welfare. Accordingly, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed. Contribution to Flood Relief - Eligibility of relief u/s. 80G - Contribution towards Flood Relief Works in pursuant to MOU dated 2/7/2010 entered with local Dy. Commissioner - as per CIT-A as per the MOU entered by assessee with Govt. of Karnataka the donations were given to Chief Minister's Relief Fund and was eligible for exemption u/s. 80G - only reason for not granting relief u/s. 80G is that assessee did not obtain the exemption certificate under the relevant provisions of the Act - HELD THAT:- It is not the case of the Revenue that said expenditure has not been incurred for the purpose as entered into Govt. of Karnataka. The above reproduced clause clearly states that assessee is eligible for exemption u/s. 80G - authorities below even after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired the character of statutory deduction, since it is withheld and retained by the CEC on the directions of the Hon'ble Supreme Court and as such, it is allowable expenditure wholly and exclusively laid out and expended for the purposes of business. 2.3. Without prejudice to the Ground Nos. 2.1 2.2 above, the Authorities below failed to appreciate that the expenditure in question is not prohibited by Law, and on the contrary, it is mandated by Law, since it is withheld and retained by the CEC on the directions of the Hon'ble Supreme Court, and as such, Explanation-1 under sub-section (1) of section 37 of the Act has no application. 2.4. Without prejudice to the Grounds in Nos. 2.1, 2.2 2.3 above, the Learned Assessing Officer as well as the Learned Commissioner of Income-tax (Appeals) ought to have appreciated that the Explanation-2 in section 37(1) of the Act is not retrospective in operation and therefore, the expenditure being contribution towards SVP could not be disallowed applying the said Explanation for the present assessment year, which is a pre-amendment assessment year. 2.5. The Learned CIT(A) failed to appreciate that the assessee/appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to FIMI towards legal expenses amounting to ₹ 20,00,000/- are expended wholly and exclusively for the purpose of business and therefore, allowable as business expenditure under section 37(1) of the Act. 4.2. The Authorities below ought not to have restricted the payment of ₹ 20,00,000/- to FIMI towards legal expenses under section 50G of the Act, failing to appreciate that the entire expenditure is allowable under section 37(1) of the Act. TRAVELLING EXPENSES. 5. The Learned CIT(A) ought to have appreciated that there is no defect in claiming the expenditure on foreign travel as per his own finding and therefore, ordered deletion of the entire addition of ₹ 4,68,259/- consistent with his own finding. 6. The Appellant denies the liability to pay the interest u/s. 234B and 234C of the Act. 7. The Grounds of Appeal are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble ITAT may be pleased to allow the appeal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on retained by the CEC was not set apart as per section 135 of the Companies Act, 2013 and therefore, the restriction in the said Explanation-2 is not attracted, even if the said Explanation is ultimately held to be retrospective in operation and as applicable to non-corporate assessees also. CONTRIBUTION TOWARDS FLOOD RELIEF. 3.1. The Authorities below ought to have appreciated that the contribution of ₹ 2,40,00,000/- towards Flood Relief as per the MOU executed with the Government of Karnataka is an eligible expenditure of business u/s. 37 of the Act, since it is expended wholly and exclusively for the purpose of the business. 3.2. The Learned AO and the Learned CIT(A) have failed to appreciate that the amount of ₹ 2,40,00,000/- towards flood relief was contributed under an element of compulsion, at the instance of Government of Karnataka, and accordingly, it is an expenditure incurred wholly and exclusively for the purpose of the business, and allowable u/s. 37(1) of the Act. 3.3. The Authorities below ought to have appreciated that Explanation-2 u/s. 37(1) of the Act was inserted by the Finance Act, 2014, w.e.f. 01-04-2015, cannot be applied retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 37 of the IT Act. The Ld. AO thus sought for explanation towards the disallowance of the deduction claimed by the assessee. 2.3. In response, the assessee submitted that, As per the procedure adopted, based on the directions issued by the Hon'ble Supreme Court from time to time inclusive of the directions given while disposing the Writ Petition bearing No. CIVIL 562 of 2009 dated 18.04.2013, from sale proceeds a percentage of 10% is to be deducted from the e-auction sale proceeds in respect of 'A' category of Mines and 15% in respect of 'B' category and to spend the said amount under Special Vehicle Purpose . As stated in the directions, this deduction is for the purpose mitigating the effects as per Comprehensive Environment Plans for the Mining Impact Zone . Hence, this is a legal amount deducted as per the directions of the Hon'ble Supreme Court which is towards mitigative measures. This is nothing but an expenditure and which should be allowed as such in our hands as we do not have any right to claim from the amount earmarked for Special Purpose Vehicle as per the directions of Hon'ble Supreme Court. 2.4. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce again the judgment in the case of Maddi Venkataraman Co. (P) Ltd. vs. CIT (1998) 229 ITR 534 (SC) wherein the Hon'ble Supreme Court has held that - Even if the entire business of the assessee is illegal and income is sought to be taxed by the assessing Officer, the expenditure in the illegal activities is not deductible after the insertion of Explanation to Section 37(1) by the Finance Act, 1998. It has been consistently held by the Courts that fines or penalties payable for Violation of law of the land cannot be permitted as deduction under the Income-tax Act. That will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. The fines/penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble Apex Court on the recomme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified as 'A' Category mine and in para 11, it was held by the Tribunal that 10% of sale proceeds being SPV in 'A' category mine was to be contributed without which, assessee therein could not have resumed its activities and therefore, is a 'business expenditure' and is allowable u/s. 37(1) of Income tax Act. He submitted that the only difference is in percentage of SPV contribution, which is 15% of sale proceeds in 'B' Category as against 10% of sale proceeds in 'A' Category. Ld. AR submitted that it does not change the nature/character of expenditure and therefore, in the present case, decision of Hon'ble Hyderabad Tribunal is squarely applicable. 5.3. The Ld. AR submitted that the issue of allowability of 10/15% of sale proceeds remitted to SPV has been considered at length by the Co-ordinate Bench of this Tribunal in following cases: (i). M/s. Veerabhadrappa Sangappa Co., in ITA No. 1054/Bang/2019 order dated, 08-12-2020. (ii). M/s. Ramgad Minerals Mining Ltd. in ITA Nos. 1270 1271/Bang/2019 order dated, 04-11-2020). (iii). Sri B. Rudragouda-ITA Nos. 314 315/Bang/2020, dated, 15-04-2021 for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laying down following principal referred to various rulings that illustrated aspects of diversion of income by overriding title. These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as its income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to pay out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt so contributed towards SPV being 15% of sale proceeds, under Category B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee fall within ambit of explanation 1 to section 37(1) of the Act. ........... Based on above discussions and analysis, we are of opinion that contribution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration. 7. This issue again came up for consideration before this Tribunal in the case of Veerabhadrappa Sangappa Co. in ITA No. 1270 1271/Bang/2019 for A.Y. 2013-14, wherein this Tribunal by order dated 4.11.2020 followed the above view by observing as under:- 7.10.1. Ld. Counsel again raised 3 prepositions before us in respect of the contribution made to SPV account from the sale proceeds. Primarily he contended that there is diversion of income by overriding title to SPV account, and therefore such amount is not liable to tax in the hands of assessee. Alternatively he submitted that the said sum may be treated as loss under section 28 while computing profit and loss under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. Emphasis Supplied 7.10.5. Applying, thin line of difference interpreted by Hon'ble Supreme Court to present facts, we are of the opinion that, contribution to SPV account, cannot be considered to be diversion of income. This is because, we have already held while deciding ground 2.1 and 2.2 hereinabove, that entire sale proceeds accrued to assessee, and it is only due to direction of Hon'ble Supreme Court that such amount was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the relevant Assessment Years 2013-14 and 2014-15 both under the normal provisions as well as u/s. 115JB of the Act for the relevant AYs. During the assessment proceedings u/s. 143(3) of the Act, the A.O. observed that the assessee-company is carrying out mining activity in India and particularly in Karnataka and that the Hon'ble Supreme Court of India took note of the large scale illegal mining activity carried on by various companies in Karnataka at the cost or detriment of environment and delivered their judgment on 18.04.2013 levying appropriate charges on the leaseholders. A.O. also observed that the Hon'ble Supreme Court, based on the extent of illegal mining, classified the mining leases into three categories viz., Category A , B and C and that the assessee is falling in Category-B in respect of Donimali Complex and that in their order, the Apex Court observed that before consideration of any resumption of mining operations by Category-B leaseholders, each of the lease holder must pay compensation for the areas under illegal mining pits outside the sanctioned area at the rate of ₹ 5 Crs per hectare and for illegal overburden for at the rate of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the compensation/penalty as directed by the Hon'ble Supreme Court is only to compensate the Government for the loss of revenue from such mining or marginal illegalities and not as a penalty. Though the nomenclature given is penalty it is not for infraction or violation of any law to hold it to be punitive in nature, as presumed by the Assessing Officer. Learned Counsel for the Assessee placed reliance on various case law, particularly the decision of the Coordinate Bench of the ITAT, Kolkata in the case of Essel Mining Industries Ltd. vs. Addl. CIT (ITA No. 352/Kol/2011 and others, dated 20.05.2016); ACIT vs. Freegade Co. Ltd. (ITA No. 934/Kol/2009, dated 05.08.2011) and also the decision of the Hon'ble Calcutta High Court in the case of ShyamSel Ltd. vs. DCIT (72 Taxmann.com 105) (Cal.). On going through the said decisions, we find that the Hon'ble Calcutta High Court has considered the case of an assessee who failed to install Pollution Control Device within factory premise within prescribed time and that the assessee had to pay ₹ 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Monitoring Committee in respect of the cleared mining leases falling in Category-A , 10% of the sale proceeds may be transferred to the SPV while the balance 10% of the sale proceeds may be reimbursed to the respective lessees. In respect of the mining leases falling in Category-B , after deducting the penalty/compensation, the estimated cost of the implementation of the R R Plan, and 10% of the sale proceeds to be retained for being transferred to the SPV, the balance amount, if any may be reimbursed to the respective lessees; The fact that the compensation is proportionate to area of illegal mining outside the leased area and that the assessee has paid the proportionate compensation for mining in the areas outside the sanctioned area allotted to it and that 10% of sum is to be transferred to SPV and the balance 10% is to be reimbursed to the respective lessees, according to us, proves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these payments are nothing but appropriation of profits earned by assessee that cannot be said to have incurred for purpose of business or earning profits. Accordingly, entire amount adjusted towards SPV was disallowed by Ld. AO. Ld. AO was of opinion that entire sale proceeds as per E auction bid Sheets/invoices were to be assessed as trading receipts. The amount retained by CEC/monitoring committee as per directions of Hon'ble Supreme Court, on behalf of assessee for SPV purposes, was on account of damages and loss caused to environment due to contravention of law, and therefore, cannot be allowed as deduction out of sale proceeds, even after accrual of such liability. Ld. AO was of opinion that, even in Category 'A' mines, there was marginal illegality found by CEC, because of which 10% of contribution was attributed out of sale proceeds to the SPV. 7.8.12. On careful reading of decision of Hon'ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Category 'B& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear regarding the types of payments that needs to be recovered from lessee's under Category 'B', from the sale proceeds as well as otherwise. All the payments form part of R R plan for recouping and rehabilitating the environment. Certain payments are onetime payment and some others are recurring depending upon the sale of iron ore sold in the name of each licensee or depending on the need for rehabilitation. 7.8.15. In our view, contributing 15% to SPV account on account of Category 'B', would be application of income, and therefore, should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R R Plans in respective sanctioned lease areas held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curiae. The purpose of constitution of the SPV, it may be noticed, is for taking of ameliorative and mitigative measures as per the Comprehensive Environment Plans for Mining Impact Zone (CPEMIZ) around mining leases in Bellary, Chitradurga and Tumkur. By order dated 28-09-2012, the Monitoring Committee was to make available the payments received by it under different heads of receivables to the SPV 7.10.12. It is noticed that amounts collected from assessee are directed to be given to the SPV, which will in turn take various types of ameliorative and mitigative steps in the interest not only of the environment and ecology but the mining industry as a whole so as to enable the industry to run in a more organized, planned and disciplined manner. Under these set of facts, it cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd. (supra) and Co-ordinate bench of Bangalore Tribunal in Ramgad Minerals (supra) came to the same conclusion. We note that in NMDC case (supra), Hon'ble Hyderabad Tribunal followed decision of Hon'ble Kolkatta High Court in the case of ShyamSel Ltd. (supra) and State Polluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred in section 135 of Companies Act, 2013. Thus, the said restriction is applicable only to Companies and not to others. Therefore, the Appellant being an individual the restriction imposed under Explanation 2 to section 37 is not applicable in the instant case. Therefore, it is submitted that the impugned expenses incurred for the purpose of business are an admissible expenditure under Section 37. 8. On the other hand, the ld. DR submitted that the finance minister has announced some tax incentives in the Budget to encourage companies to participate in 'Swachh Bharat Abhiyan' and 'Clean Ganga campaign'. It is announced that the donations (other than the corporate social responsibility or CSR contributions) made to 'Swachh Bharat Kosh' (both by resident and non-resident) and Clean Ganga Fund (by resident) shall be eligible for 100 per cent deduction under section 80G of the Income Tax Act. As per the CSR provisions, Companies have been mandated to spend 2 per cent of their three-year average net profit on CSR under the Companies Act, 2013. The companies are also required to disclose the CSR activities and the amount spent on it in their annual rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only allowed as a deduction for computing taxable business income. CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 30 to 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purpose of carrying on business or profession. As CSR expenditure being application of income is not incurred for the purpose of carrying on of business, such expenditure cannot be allowed under the provisions of section 37 of the Act. Therefore, in order to provide certainty on this issue, the said section 37 has been amended to clarify that for the purpose of sub-section (1) of section 37 any expenditure by an assessee on the activities relating to CSR referred to in section 135 of the Companies At, 2013 should not be allowed as deduction under sub-section 37. However, CSR expenditure which is of nature described sections 30 to 36 of the Act, shall be allowed as deduction under this section, subject to fulfillment of conditions, if any, specified therein. But this amendment takes effect from 1.4.2015 and will be applicable in relation to A.Y. 2015-16 and subsequent years. 12. Now the issue before us is whether the department is justified in invoking this Explanation 2 to section 37 to disallow above expenditure incurred by the assessee. Explanation (2) to section 37 reads as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.] 14. Schedule VII to the Companies Act, 2013 is extracted hereunder:- SCHEDULE VII (See Section 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:- [(i) Eradicating hunger, poverty and malnutrition, [''promoting health care including preventive health care''] and sanitation [including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. (ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects. (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and medicine aimed at promoting Sustainable Development Goals (SDGs).] (x) rural development projects] [(xi) slum area development. Explanation.-For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.] [(xii) disaster management, including relief, rehabilitation and reconstruction activities.] 15. By going through the provisions of Explanation 2 to section 37, it is evident that the said Explanation refers to CSR expenditure as referred in section 135 of the Companies Act, 2013. Thus said restriction is applicable only to the companies, not others. 16. The ld. DR submitted that Explanation to s. 37 is applicable to assesses including individual assesses like the present assessee. We are not in agreement with the above contention of the ld. DR. While interpreting the word in the section, particularly in the Explanation 2 to s. 37, which are enacted under beneficial legislation, the basic principle that has to be kept in mind is the object and intention of the Legislature for enactment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Gujarat High Court held as under:- 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 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 under section 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 Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2012-13. The same view is applied for grounds 2.1 to 2.6 mutatis mutandis for asst. year 2013-14 and 2014-15 respectively. Ground No. 3.1 to 3.5 10. During the course of assessment proceedings, it was submitted that sum of ₹ 2.4 crores was contributed towards Flood Relief Works in pursuant to MOU dated 2/7/2010 entered with local Dy. Commissioner for asst. year 2012-13. He submitted that, the amount was spent for social cause and that to at the instance of Govt. of Karnataka. The Ld. AO after considering various submissions by assessee made addition of such amount by holding that assessee did not obtain exemption certificate u/s. 80G of the Act. 10.1. Aggrieved by the order of AO, the assessee preferred an appeal before the Ld. CIT(A). 10.2. The Ld. CIT(A) on verifying the asst. order and submissions filed by assessee, observed that, as per the MOU entered by assessee with Govt. of Karnataka the donations were given to Chief Minister's Relief Fund and was eligible for exemption u/s. 80G of the Act. He observed that, the Ld. AO denied the claim of assessee as it did not comply with all the conditions of the MOU. The Ld. CIT(A) also observed that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alamity) and obtain income tax exemption certificate. Then, in the second stage, this money will be deposited in a joint account in the name of the Donor and designated officer who together shall spend it on the specified resettlement work. 10.9. The only reason for not granting relief u/s. 80G is that assessee did not obtain the exemption certificate under the relevant provisions of the Act. It is not the case of the Revenue that said expenditure has not been incurred for the purpose as entered into Govt. of Karnataka. The above reproduced clause clearly states that assessee is eligible for exemption u/s. 80G of the Act. 10.10. We note that authorities below even after admitting these facts have not granted relief to the assessee as per the provisions of sec. 80G of the Act. We thus remand this issue to the Ld. AO for computing the deduction eligible to assessee under 80G of the Act for the donations given to the Chief Minister's Relief Fund (calamity). Accordingly the grounds raised by assessee for year under consideration stands allowed for statistical purposes for all years under consideration. Ground No. 4.1 to 4.2: 11. This issue is only relevant to asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the facts on record, we are of the view that the identical issue of the assessee's claim for being allowed deduction of its contribution to 'FIMI' as revenue expenditure, was considered and allowed by the ITAT - Delhi Bench in the case of Rio Tinto India Pvt. Ltd., Vs. ACIT, wherein its order in ITA No. 363/Del/2012 dated 22.06.2012, at paras 13 to 17 thereof, it was held as under:- 13. Ground No. 4 in the appeal relates to disallowance of an amount of ₹ 50 lacs on account of contribution towards Federation of Indian Mining Industries Building Fund. To a query by the AO during the course of assessment proceedings, the assessee replied that Federation of Indian Mining Industries was engaged in liaisoning with various Government bodies on mining related issues and since it provides support to mining industries and the assessee is rendering services to the mining industries, the expenditure was wholly and exclusively incurred for the purpose of business. However, the AO did not accept the submissions of the assessee on the ground that the assessee failed to establish that expenditure was incurred wholly and exclusively for the purpose of business. Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her is not enough even a significant detail may alter the entire aspect. It was observed that 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. In Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT, 223 ITR 101 (SC), Hon'ble Apex Court held that the correct test is that of commercial expediency. In Chemicals Plastics India Ltd. (supra), Hon'ble Madras High Court while adjudicating as to whether or not the amount of ₹ 1.5 lakhs paid towards the construction of building of the Madras Chamber of Commerce was allowable as business expenditure, held that since the contribution 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., it satisfies the commercial expediency test. In CIT vs. T.V. Sundaram lyengar And Sons Pvt. Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g activities of the nation. Apparently, the expenditure incurred by the assessee by way of contribution towards building fund of the said federation, is for commercial consideration and it is not incurred for the purpose of securing any capital assets. In the light of view taken in the aforesaid decisions, we are of the opinion that contribution towards building fund of Federation of Indian Mineral Industries, of which the assessee is a member, has been incurred with a view to obtaining a commercial advantage and is allowable as revenue expenditure. In view thereof, ground No. 4 in the appeal is allowed. 3.4.2 Respectfully following the above cited decision of the ITAT - Delhi Bench in the case of Rio Tinto India Pvt. Ltd., Vs. ACIT (supra), we uphold the assessee's claim for the expense of ₹ 25 lakhs paid as contribution to FIMI to be allowed as revenue expenditure incurred in the course and for the purposes of the assessee's business and consequently delete the disallowance made by the AO in this regard. We hold and direct accordingly. 11.5. We note that the legal payment incurred by assessee is towards representing case filed of FIMI against which TDS ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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