TMI Blog1975 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent had paid an amount of Rs. 30,900 as a donation to the Chief Minister's Drought Relief Fund. Similarly, in Misc. Civil Case No. 326 of 1973 the respondent-assessee had paid an amount of Rs. 7,110, towards the Chief Minister's Drought Relief Fund. The assessment year was 1968-69 for which the accounting period ended in the Diwali of the year 1969. The assessees claimed deduction of the said amounts of donations as business expenses under section 37(1) of the Income-tax Act, 1961. The Income-tax Officer did not accept the contention of the assessee and added the amounts of donations to the assessees-income. It was held that the said donations had no connection with the export permits of gulabi chana. On an appeal to the Appellate Assistant Commissioner, the appellate authority substantially agreed with the finding of the Income-tax Officer that these contributions had no connection with the export permits of gulabi chana. However, it was of the opinion that the assessees were entitled to deductions under section 80G of the Income-tax Act, 1961, as donations towards charity. On the other hand, the Income-tax Appellate Tribunal came to the conclusion that the assessees were entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given donations, were actually granted permits. It is on these facts that we have to consider the question referred to us for our opinion. Further, we may observe that on the assessees' own contention that the donations were compulsory and as a condition precedent to the grant of permit, the assessees would have no case. If that had been the position, the permits including the donations, would have been vitiated as being opposed to public policy and, therefore, void under section 23 of the Indian Contract Act. Therefore, we have to ignore that assertion of the assessees. Business expenses were allowed while calculating profits or gains as per section 10(2)(xv) of the Indian Income-tax Act, 1922. The provision in the repealed Act was as follows : " 10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on, by him. (2) Such profits or gains shall be computed after making the following allowances, namely :--....... (xv) any expenditure (not being an allowance of the, nature described in any of the clauses (i) to (xiv) inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate of the sum specified in sub-setion (2). (2) The sums referred to in sub-section (1) shall be the following, namely :-- (a) any sums paid by the assessee in the previous year as donations to-- (i) the National Defence Fund set up by the Central Government ; or (ii) the Jawaharlal Nehru Memorial Fund referred to in the deed of declaration of trust adopted by the National Committee at its meeting held on the 17th day of August, 1964 ; or (iii) the Prime Minister's Drought Relief Fund : or (iv) any other fund or any institution to which this section applies ; or (v) the Government or any local authority, to be utilised for any charitable purpose,......." The assessees' case would be covered by sub-clause (v) of clause (a) of sub-section (2) of section 80G of the Income-tax Act, 1961. Learned counsel for the assessee advanced lengthy arguments and cited numerous cases on the point as to what would be business expenses. We may in brief refer to some relevant cases on the point. In Commissioner of Income-tax v. Panbari Tea Co. Ltd., their Lordships of the Supreme Court laid down that the real test of a salami or premium is whether the amount paid, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n up for reasons of commercial expediency and was business expenditure allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. Their Lordships of the Supreme Court laid down that, in such a case, in order to justify deduction the sum must be given up for reasons of commercial expediency ; although it may not be voluntary, but so long as it was incurred for the assessee's benefit the deduction was allowable. All the same, it would be a question of fact that the amount which was claimed as a deductible allowance under section 10(2)(xv) of the Indian Income-tax Act, 1922, was laid out wholly and exclusively for the purpose of such business and if the fact-finding Tribunal came to the conclusion on evidence which might justify that conclusion, it being for them to find the evidence and give the finding then it will become an admissible deduction. In that particular case it was found that the relinquishment of commission by the assessee was for commercial expediency. Can it be said that giving a donation to some official fund or to some political organization would be business need or a commercial expediency ? In our opinion, such a donation would be a voluntary one just t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Meenakshi Mills Ltd. v. Commissioner of Income-tax, their Lordships of the Supreme Court laid down that any expenses incurred by the assessee challenging restrictions on its business would be expenses for the purpose of its business and would be deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. Their Lordships laid down that for attracting the provision it is not necessary that the primary motive in incurring the expenses must be directly to earn income thereby. What would be sufficient would be protection and preservation of the business. Next, we may consider some decisions of different High Courts where in the principles laid down by their Lordships of the Supreme Court in the said case have been followed. In Haji K. Assainar v. Commissioner of Income-tax , a Division Bench of the High Court had to consider a case where the assessee had paid an amount of Rs. 16,977 as salary to the assessee's sister's son who was only a young undergraduate studying for the B. Sc. degree. He was appointed as a secretary and he possessed no knowledge of commercial accountancy, nor any experience in, business administration. The appointment was motivated by considerations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituated at a place far away from Calcutta and other places and the supply of coal, packing bags and cement entailed problems which were solved by the Government ruled by the Congress Party and that the Government had given to the assessee an interest-free loan of Rs. 50 lakhs and had also subscribed for Rs. 40 lakhs worth of preference capital in the company and had also agreed to buy the entire cement for Hirakud Dam and since the Congress Party was the ruling party, the payment was motivated by commercial considerations. Their Lordships of the Delhi High Court ruled that the expenditure could not be allowed as a deduction because the assessee failed to show the link between its business and contribution made to the Congress Party. Their Lordships also further laid down that an expense incurred voluntarily but wholly and exclusively for the expender's trade might, in certain circumstances, be a permissible deduction even though it may ensure to some extent to a third party's benefit. They also conceived that sometimes payments for political purposes might be for the purposes of the trade ; but, according to the Division Bench, a link between the trade and the payment must be estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. We may observe that if the assessees in such circumstances formed an association or a union and embarked on legal processes or some movement for self-preservation or for protecting their trade or business, the expenses would undoubtedly be deductible expenses under section 37(1) of the Income-tax Act, 1961. But we have grave doubt whether donations to political parties for such purposes would be deductible expenses. We may observe that what is necessary is that direct connection should be established between the expenses and the character of the assessee as a trader. As already observed by us earlier, any donations to political parties or Government sponsored funds with the object of gaining some advantage in future would not be a deductible expense ; but we would certainly be inclined to hold that such an action would be opposed to public policy. Therefore, we would agree with the view of the Division Bench of the Punjab and Haryana High Court to the limited extent and not in its entirety. To conclude, we are of the opinion that the Appellate Assistant Commissioner had rightly held that the donations by the assessee to the Chief Minister's Drought Relief Fund could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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