TMI Blog1978 (10) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... he I.T. Act, 1961 as they were in the nature of expenditure incurred wholly and exclusively for the purpose of the business of the assessee. It is necessary first to refer to the facts found by the Tribunal regarding the nature of donations. In the relevant previous year, twelve districts of Madhya Pradesh were badly hit by famine. The export of foodgrains had to be controlled. The Government of Madhya Pradesh, on 8th June, 1967, issued the Madhya Pradesh Gram (Export Control) Order, 1967, under s. 3 of the Essential Commodities Act, 1955. The order extended to the whole of Madhya Pradesh and came into force at once. Clause 3 of the order, in so far as material, provided as follows : " No person shall export or attempt to export or abet the export of Gram except under and in accordance with the permit issued by the State Government or by any Officer authorised in that behalf by the State Government. " At the relevant time, the Cabinet consisted of the members of Sanyukta Vidhayak Dal (S.V.D.). The Cabinet was headed by Shri Govind Narain Singh, who was the Chief Minister. The Madhya Pradesh Anaj Tilhan Vyapari Maha Sangh of Bhopal, Which is an association of the foodgrain mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sangh wrote to the constituents asking the merchants to deposit Rs. 30 per quintal for the export of gulabi chana and Rs. 5 per quintal for the export of pulses. The letter directed that the deposits were to be made into the State Bank of India or the State Bank of Indore. It was further directed in the letter that the deposits were to be made into the head " Chief Minister's Drought Relief Fund " and duplicate receipts were to be obtained from the bank. It was also directed that the original of such receipts were to be sent along with the duly filled in application forms for permits to the Maha Sangh at Bhopal. The letter then directed that in case any bank refused to issue duplicate receipts, a draft of the amount should be obtained in the name of the Chief Minister's Drought Relief Fund and that the application for permit with the draft should be sent to the Maha Sangh at Bhopal. The letter also asked the members to send Rs. 0.50 per quintal for meeting the administrative expenses of the Maha Sangh. The Maha Sangh received applications in accordance with the directions contained in the aforesaid letter from various merchants including the assessee in this case. These application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable purpose. The donations made by the assessee to the Chief Minister's Drought Relief Fund were covered by section 80G. The section, however, allows only a certain percentage of the donations as admissible deduction. There is no dispute that the assessee would be entitled to the benefit of s. 80G in case it is held that the donations cannot be allowed as expenses under s. 37(1) of the Act. Section 37(1), with which we are concerned, reads as follows : " 37. (1) 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'. " The donations to the Chief Minister's Drought Relief Fund do not fall within ss. 30 to 36 and are not in the nature of capital expenditure or personal expenses of the assessee. Therefore, if it is held that the donations were in the nature of expenditure " laid out or expended wholly and exclusively for the purposes of the business ", i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is for the purposes of the business and an allowable expenditure, the test applied is of commercial expediency and principles of ordinary commercial trading. If the payment or expenditure is incurred to facilitate the carrying on of the business of the assessee and is supported by commercial expediency, it does not matter that the payment is voluntary or that it also enures to the benefit of a third party [See CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601 (SC).] In other words, if the sole object is business promotion, the expenditure would still be wholly and exclusively for the purposes of the assessee's business even though some other object necessarily results, being inherent in the nature and quality of the expenditure [See Iyengar's Income Tax, Vol. 2, 6th edn. p. 956.] In Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277, the Supreme Court, after referring to earlier cases, summarised the position thus : " The nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be, necessitated or justified by commercial expediency. It must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to make the donation for getting the permit and that, in fact, permits were even granted in a few cases to merchants who had not made the donations. The merchants made the donations as a matter of commercial expediency to facilitate the obtaining of permits which were necessary for carrying on the export trade. The expenditure had a direct connection with the permit. The receipts of donations were attached with the applications for permits. Permits were granted in proportion to the donations made. The Tribunal, in our opinion, was right in holding that there was a direct nexus between the assessee's business and the donations and that the donations were allowable under s. 37(1) as expenditure incurred wholly and exclusively for purposes of the assessee's business. Learned counsel for the revenue submitted before us that the donations were not exclusively for business and that they were for the dual purpose of business and charity. In our opinion, there is no merit in this submission. The object behind the donations was to obtain permits' for business to enable the assessee to earn profits by exporting and selling gram in the neighbouring States where the price of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 37(1) for want of nexus between the donation and the business of the asssesee. The cases which fall under this category are J. K. Cotton Spg. Wvg. Mills Co. Ltd. v. CIT [1966] 62 ITR 813 (All), CIT v. Elphinstone Spg. Wvg. Mills Co. [1975] 100 ITR 139 (Bom) and Orissa Cement Ltd. v. CIT [1969] 73 ITR 14 (Delhi). As in these cases, the taxpayer failed to establish a link between the expenditure and the trade, the expenditures were held to be not admissible under s. 37(1). But as observed by Scrutton J. in Smith v. Incorporated Council of Law Reporting for England and Wales [1914] 3 KB 674, 684 (KB), " payments for political purposes may conceivably be for purposes of trade. " In contrast, there are cases in which a link was established between contributions and trade and the contributions were allowed as admissible expenses under s. 37(1). In Delhi Cloth and General Mills Co. Ltd. v. CIT [1972] 85 ITR 261 (Delhi) the facts were that a bill was introduced in the legislature to ban manufacture of vanaspati ghee. The manufacturers formed an association for carrying on a campaign against the bill. The assessee who was a member of the association paid substantial amount for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as material to show that at least some members of the Maha Sangh who did not give donations were also given permits. We have explained above that the mere fact that the donations were voluntary and that some members got permits even without making donations is not crucial for determining whether the donations constituted business expenditure allowable under s. 37(1). The Division Bench further observed that the Phrase " for the purposes of the business " meant that " the expenditure must be necessary for the purposes of the business or it may have to be incurred on account of the practice prevailing in any particular trade or business " . It was further observed that " it will not include any voluntary donations made by an assessee for purposes of charity " . Now, we have earlier stated that for an expenditure to fall within s.37(1), it need not be a necessary expenditure. We have also stated that the test laid down by the Supreme Court is of commercial expediency. The expression " commercial expediency " is not limited to an existing practice prevailing in any particular trade or business. Even if the incurring of a particular expenditure may not be supported by any prevailing pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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