TMI Blog2023 (11) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... hile computing taxable income for the period under consideration. The Supreme Court in the case of Patnaik Company Limited [ 1986 (7) TMI 6 - SUPREME COURT ] held that since the investment in the fertilizer bond was made by the respondent under commercial expediency it did not bring an asset of a capital nature and the diminution in the value of the said bond are allowable as revenue loss. Having regard to the facts of the present case and after placing reliance on the above decisions the claim by the respondent as revenue loss on account of the diminution in the value of the GOI Bonds is held in favour of the Respondent. Thus, the appeal of the appellant on this ground is dismissed. Nature of expenditure - expenditure on school for the benefit of its employees - whether school expenses can be treated as business expenditure? - HELD THAT:- As 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 school, hospital, etc., for the employees of their children or for the children of the ex-employees. The employees of today ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.K. PANIGRAHI, J. 1. In this case, the appellant in ITA No. 1 2019, ITA No. 4 of 2019, ITA No. 3 2019 and ITA No. 42 of 2023 has challenged the orders passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack (for short the Tribunal ) in favour of the respondent. Two common issues arise in the aforesaid four appeals. The first issue is whether the Income Tax Appellate Tribunal erred in holding that the provisions of diminution of Government of India Fertilizer Bonds [GoI Bonds] is an allowable deduction. This issue arises in ITA No. 1, ITA No. 4 and ITA No. 42. The other issue that arises for considerations is whether school expenses can be treated as business expenditure. This issue arises in ITA No. 3 of 2019 and ITA No. 4 of 2019. As a result of the overlap in the issues in the aforementioned appeals, they are being dealt with together. I. FACTUAL MATRIX OF THE CASE: 2. The assessee [the respondent] had filed two appeals against the orders passed by the CIT[A] Bhubaneswar for the assessment years 2010-11 2014-15 before the Income Tax Appellate Tribunal, Cuttack Bench. The respondent is an entity engaged in the business of manufacturing and trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010-2011. The tribunal held that the amount that was being incurred for education and being paid to DAV School was for the welfare of the staff which would ultimately result in the smooth functioning of the business. As it was incurred for the aforementioned purpose, it was an allowable business expenditure. Therefore, the tribunal held in favour of the respondent and allowed the deduction. Aggrieved by the order, the appellants have filed this appeal. II. APPELLANT S SUBMISSIONS: 6. Learned counsel for the appellant earnestly made the following submissions in support of his contentions: (i) The running of the school by the DAV School Management is within the premises of the respondent and it has no direct nexus with the business. Further, the expenditure incurred was being debited to the profit and loss account. Thus, it is not an allowable deduction as per Section 40A(9) and Section 37(1) of the Income Tax Act, 1961. (ii) The appellant contends that the reduction in value of the GOI Fertilizer Bonds cannot be claimed as the loss has not actually been incurred but it is merely on the anticipation of loss that a deduction is being claimed. In asserting so, relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the present case are entirely different. 9. In DCM Shriram case (supra), the Delhi High Court as well as the tribunal from which the appeal was preferred held that the fertilizer bonds were accepted in the course of business in lieu of fertilizer subsidy by the Government of India. The company had no intention to hold bonds as such and the same had been received by the company under compulsion in lieu of cash fertilizer subsidy amount. Thereby, the loss incurred due to the diminution in the value of the bonds may be regarded as a revenue loss and can be claimed as deduction while computing taxable income for the period under consideration. The Supreme Court in the case of Patnaik Company Limited vs. CIT [1986] 161 ITR 365 (SC), held that since the investment in the fertilizer bond was made by the respondent under commercial expediency it did not bring an asset of a capital nature and the diminution in the value of the said bond are allowable as revenue loss. Having regard to the facts of the present case and after placing reliance on the above decisions by the Delhi High Court and the Supreme Court of India, this Court is of the view that the decision of the ITAT, Cut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 . To be an allowance within section 37(1), barring the exceptions mentioned therein, the money paid out or away must be paid out wholly and exclusively for the purpose of the business . The assessee can claim the whole of it for deduction in computing the income chargeable under the head Profits and gains of business or profession . The money by way of such expenditure must be laid out or expended wholly and exclusively for the purpose of business . The word wholly refers to the quantum of expenditure and the word exclusive refers to the move, object or purpose of the expenditure. While applying section 37(1), it must be kept in mind that the expenditure claimed therein need not be necessarily spent by the assessee. It might be incurred voluntarily and without any necessity , but it must be for promoting the business. In other words, if the expenditure has been incurred by the assessee volun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 37(1) of the Act. Expenditure primarily denoted the ideal of Spending or paying out or away . It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future. It must be an actual liability in present, as opposed to a contingent liability of the future. Some of these principles have been explained by the Supreme Court in Indian Molasses Co. (Private) Ltd. v. CIT [1959] 37 ITR 66 , wherein it has been reiterated that: The income-tax law does not allow as expense all the deductions a prudent trader would make in computing his profits. The money may be expended or grounds of commercial expediency but not of necessity. The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payment of a revenue character. But the income-tax law does not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in present and a liability de futuro which, for the time being, is only contingent. The Former is deductible but not the latter . 14. Yet in some other cases like:- P. Balakrishnana, CIT v. Travancore Cochin C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling of tools, lathes, etc. The company constituted a trust, the object of which is to apply its income for the promotion and encouragement of education principally of the children of the employees and ex-employees of the company. The company was established in a place called Harihar which is not a developed city. In order to attract technocrats and men of managerial skill, the company had to establish facilities for the employees and education for their children. Hence, in furtherance of the object of the trust, the trust established a school at Harihar. To that school, the children of the employees and ex-employees as well as of general public are admitted. The assessee-company donates a certain sum every year to meet the expenditure of the school. In the accounting year relevant to the assessment year, the assessee has donated Rs. 62,000/- and claimed out of it 61.1 per cent, by way of deduction under Section 37(1) of the Act. Such claim was made on the ground that 61 per cent of the school children are the children of the employees and the ex-employees of the assessee. The income tax officer did not allow the exemption as claimed. The Commissioner of Income Tax and the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X
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