“13. Learned Senior Counsel For The Revenueplaced Reliance On The Decision Of The Calcuttahigh Court In Cit v. Indian Oil Corporation Ltd. (Erthwhile Bongagaon Refinery And Petrochemicals Ltd.)

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1765 OF 2016 The Pr.Commissioner of Income-Tax-14 … Appellant V/s. Indian Oil Corporation Ltd. … Respondent --- Mr.Suresh Kumar for the Appellant.Mr.R.Murlidhar with Mr.Atul Jasani for the Respondent. --- CORAM : AKIL KURESHI AND B.P.COLABAWALLA, JJ. DATE : FEBRUARY 11, 2019. P.C.:- 1.This appeal is filed by the Revenue challenging thejudgment of income Tax Appellate Tribunal (“the Tribunal” forshort) dated 24[th] February, 2016. 2.Following question was presented for our consideration:- “Whether on the facts and circumstance of the caseand in law, the Tribunal correct in holding thatthe expenditure incurred by the assessee towardthe grant-in-aid to the school/institution areallowable under section 37(1) of the Act and theprovision of section 40A(9) are not attracted?” Priya Soparkar 3.Brief facts are as under: Respondent-Indian Oil Corporation Limited (“IOC” forshort) is engaged in oil exploration and refining business. It hasits installation at various places. In the return filed by the assesseefor the assessment year 2006-07, the Assessing Officer noticedthat assessee had claimed deduction of the amounts spent by theassessee in either setting up or providing grant-in-aid inKendriya Vidyalaya Schools where students of the employees ofthe assessee-company would receive their basic education. TheAssessing Officer was of the opinion that the claim would be hitby sub-section 9 of Section 40A of the Income Tax Act, 1961 (“theAct” for short). The Tribunal by the impugned judgment allowedthe assessee's appeal and held that the expenditure was allowablein terms of Section 37(1) of the Act. The Tribunal referred toearlier judgment of this very assessee rendered by the Tribunal inwhich detailed reference was made to various decisions ofdifferent High Courts including this Court. 4.At the outset, we may record that against the judgment ofthe Tribunal case of this very assessee for the earlier assessment Priya Soparkar 322 itxa 1765-16-o year 2005-06, the question does not appear to have beencarried in appeal. No reasons are set forth why in the present yearthe revenue was of the opinion that appeal should be filedbefore the High Court. Be that it may, independently also wehave examined the facts and materials on record. Undisputed factis that the assessee had incurred the expenditure in question forproviding basic education to the children of the employees. Therevenue's objection to such expenditure being allowed in viewsof Section 40A(9) of the Act was overruled by the Tribunalholding that the same was not towards contribution to anyfund. The Tribunal was of the opinion that the expenditurecould be stated to have been incurred for the purpose of businessof the assessee. In the process, the Tribunal referred to andrelied upon various judgments of the different High Courtstouching on similar issue. We notice that the Kerala High Courtin case of P. Balakrishnan, Commissioner of Income-Tax Vs.Travancore Cochin Chemicals Ltd.[1] had examined whether theamounts spent by the assessee towards contribution to school inwhich children of the employees were studying, would be hit by 1243 ITR 284 Section 40A(9) of the Act and therefore, not allowable asdeduction under Section 37 of the Act. The High Court hadallowed the expenditure and held and observed as under:- 1243 ITR 284 Section 40A(9) of the Act and therefore, not allowable asdeduction under Section 37 of the Act. The High Court hadallowed the expenditure and held and observed as under:- “13. Learned senior counsel for the Revenueplaced reliance on the decision of the CalcuttaHigh Court in CIT v. India Tobacco CompanyLtd. [1978] 114 ITR 182. There the assessee-company constructed a hospital. At the timewhen the hospital was ready, the Employees'State Insurance Scheme came into operationand the Government of Bihar required thehospital. Some negotiations had taken placebetween the assessee and the Government andalso the workers' union. On the basis of thesaid settlement, the assessee had given anamount of Rs. 50,000 to the Government forthe purchase of equipment for the hospital.The company had two kinds of employees,viz., those who were covered by the provisionsof the Employees' Insurance Scheme whichprovides for hospital benefits and alsoemployees who were not covered by thescheme. By making the payment of Rs. 50,000,the company obtained a privilege of getting itsemployees who were not covered by theprovisions of the Employees' InsuranceScheme, treated in the above hospital. There itwas held that the assessee by making theabove one lumpsum payment, not only got ridof a liability to make recurring annualpayments for the treatment of its workers whowere not covered by the State InsuranceScheme at the hospital of the Government butalso obtained this advantage or privilege for anindefinite period, and hence the expenditure inquestion was capital in character and hence not admissible for deduction under Section37(1) of the Act. The facts of the above casedo not have any similarity with the facts of thepresent case and the principles laid down inthe above case have no application. In the casein hand, the expenditure met by the assesseewas wholly and exclusively for the welfare ofits employees and also for carrying on thebusiness of the assessee-company moreefficiently by having a contented labour force.It was neither a donation covered underSection 40A(9) nor of a capital in nature notcovered under Section 37(1) of the Act.Hence, the Tribunal is fully justified inallowing the above expenditure towardscontribution for the running of the FACTschool, as an expenditure for the smoothfunctioning of the business of the assessee andalso an expenditure wholly and exclusively forthe welfare of the employees of the assesseeand thus allowable under Section 37(1) aswell as Section 40A(10) of the Act. Thusquestions Nos. 1 to 3 are answered in favourof the assessee and against the Revenue.” 5.Similarly, Bombay High Court in case of Commissioner of Income Tax Vs. Bharat Petroleum Corporation Limited[1] hadoccasion to examine whether the expenditure incurred by theassessee in establishing a club to carry on welfare activities canbe claimed by way of expenditure under section 37(1) ignoringthe limitation contained under Section 40A(9) of the Act. The Priya Soparkar High Court while dismissing the revenue's appeal and approving the view of the Tribunal in this context observed as under:- 5.Similarly, Bombay High Court in case of Commissioner of Income Tax Vs. Bharat Petroleum Corporation Limited[1] hadoccasion to examine whether the expenditure incurred by theassessee in establishing a club to carry on welfare activities canbe claimed by way of expenditure under section 37(1) ignoringthe limitation contained under Section 40A(9) of the Act. The Priya Soparkar High Court while dismissing the revenue's appeal and approving the view of the Tribunal in this context observed as under:- “6. Bharat Petroleum Corporation is a CentralGovernment undertaking. It has incorporateda club, essentially to carry on staff welfareactivities. Under Clause 28, Bharat PetroleumCorporation Limited had a right to issuedirectives to the club which were binding onthe club. At times, the members of the club,who were the employees of Bharat PetroleumCorporation, took part in tournaments heldoutside the club premises like Times shield incricket. On such occasions, the assessee-Corporation used to reimburse expensesincurred by the club. This is the finding of factrecorded by the Tribunal. In thecircumstances, Section 40A(9) is notapplicable. No substantial question of lawarises. Hence, our answer to the aforestatedquestion No. 2 is in the negative, i.e., infavour of the assessee and against theDepartment.” 6.Under the circumstances, we see no error in the view of theTribunal. No question of law arises. Income Tax Appeal isdismissed. (B.P.COLABAWALLA,J.) (AKIL KURESHI,J.) ….