Commissioner Of Income Tax, Jaipur-Ii ,Jaipur v. M/S Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited,Jaipur Dairy, Near Gandhi Nagar Railway Station, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 234 / 2012 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus M/s JAIPUR ZILA DUGDH UTPADAK SAHKARI SANGH LIMITED,JAIPUR DAIRY, NEAR GANDHI NAGAR RAILWAY STATION, JAIPUR ----Respondent Connected With D.B. Income Tax Appeal No. 3 / 2016 Pr. Commissioner of Income Tax, JAIPUR-II ,JAIPUR ----Appellant Versus M/s JAIPUR ZILA DUGDH UTPADAK SANGH LIMITED, JAIPUR DAIRY, NEAR GANDHI NAGAR RAILWAY STATION, JAIPUR ----Respondent D.B. Income Tax Appeal No. 122 / 2016 Pr Commissioner Of I T Jaipur-Ii Jaipur ----Appellant Versus M/S Jaipur Zila Dugdh Utpadak Sangh Limited, Jaipur Dairy, Near Gandhi Nagar Railway Station, Jaipur ----Respondent D.B. Income Tax Appeal No. 218 / 2016 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s. Jaipur Zila Dugdh Utpadak Sahakari Sangh Limited, Jaipur Dairy, Near Gandhi Nagar Railway Station, Jaipur ----Respondent D.B. Income Tax Appeal No. 265 / 2016 Principal Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Jaipur Zila Dugdh Utpadak Sahakari Sangh Limited, Jaipur Dairy, Near Gandhi Nagar Railway Station, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. K.D. Mathur For Respondent(s) : Mr. Gunjan Pathak with Mr. Aditiya Bohra _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 11/09/2017 1. In all these appeals since identical questions of law and factsare involved, they are decided by this common judgment. 2.By way of these appeals, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the assessee. 3.This court while admitting the appeals framed the followingquestions of law:- 1. D.B. Income Tax Appeal No. 234 / 2012 “Whether in the facts in the circumstances of the casethe ITAT was justified in law in deleting the additions made bythe Assessing Officer by way of disallowance of Rs.8967327/- contributed to the trust registered u/s. 12AA andholding the said amount to be business expenditure?” 2. D.B. Income Tax Appeal No. 3/ 2016 “Whether the ITAT was justified in law in deleting theadditions made by the Assessing Officer by way of disallowance of Rs. 85,66,157/- contributed to the trustregistered u/s. 12AA and holding the said amount to bebusiness expenditure?” 3. D.B. Income Tax Appeal No. 122/ 2016 “Whether in the facts and circumstances of the casethe ITAT was justified in law in deleting the additions madeby the Assessing Officer by way of disallowance of Rs.11407817/- paid as contribution to ‘Sparsh trush’ registeredu/s 12AA of the income tax act, 1961 treating the same isbusiness expenditure in place of donation allowable u/s 80Gof the I. T. Act, 1961 despite the fact that the said receipt ofdonation was declared by the trust as donation income andcorresponding expenditure was claimed as application inincome.” 4. D.B. Income Tax Appeal No.218/2016 “Whether in the facts and circumstances of the casethe ITAT was justified in law in deleting the additions madeby the Assessing Officer by way of disallowance of Rs.11939836/- paid as contribution to ‘Sparsh trush’ registeredu/s 12AA of the income tax act, 1961 treating the same isbusiness expenditure in place of donation allowable u/s 80Gof the I. T. Act, 1961 despite the fact that the said receipt ofdonation was declared by the trust as donation income andcorresponding expenditure was claimed as application inincome.” 5. D.B. Income Tax Appeal No.265/2016 4. D.B. Income Tax Appeal No.218/2016 “Whether in the facts and circumstances of the casethe ITAT was justified in law in deleting the additions madeby the Assessing Officer by way of disallowance of Rs.11939836/- paid as contribution to ‘Sparsh trush’ registeredu/s 12AA of the income tax act, 1961 treating the same isbusiness expenditure in place of donation allowable u/s 80Gof the I. T. Act, 1961 despite the fact that the said receipt ofdonation was declared by the trust as donation income andcorresponding expenditure was claimed as application inincome.” 5. D.B. Income Tax Appeal No.265/2016 “Whether in the facts and circumstances of the case theITAT was justified in law in deleting the additions made bythe Assessing Officer by way of disallowance of Rs.12363091/- paid as contribution to ‘Sparsh trush’ registeredu/s 12AA of the income tax act, 1961 treating the same isbusiness expenditure in place of donation allowable u/s 80Gof the I. T. Act, 1961 despite the fact that the said receipt ofdonation was declared by the trust as donation income andcorresponding expenditure was claimed as application inincome.” 4. Counsel for the appellant Mr. Mathur has taken us to the order passed by CIT(A) wherein while considering the issue the CIT(A) observed as under:- “3.1 I have duly considered the submissions of theappellant. The appellant is a co-operative societyengaged in the business of procurement of mild andprocessing it to prepare milk products. To procure thebetter quality and quantity of milk, the assessee wasproviding various facilities to the milch animal owners 4. Counsel for the appellant Mr. Mathur has taken us to the order passed by CIT(A) wherein while considering the issue the CIT(A) observed as under:- “3.1 I have duly considered the submissions of theappellant. The appellant is a co-operative societyengaged in the business of procurement of mild andprocessing it to prepare milk products. To procure thebetter quality and quantity of milk, the assessee wasproviding various facilities to the milch animal owners such as vaccination & medical treatment of animals,emergency services etc. Earlier all these services wereprovided by the assessee itself but consideringdifficulties in management and control, it was decidedto create a trust for this purpose. Accordingly, a trustin the name of Pasudhan Kalyan and UpbhoktaSamvardhan on 12.03.2004. The Sparsh trust wasregistered U/s 12AA and also granted certificate U/s80G. The said trust had allegedly carried out variousprograms in the field of animal productivityenhancement. Accordingly the appellant hadcontributed amount of Rs.89,67,327/- to this trustduring the year under consideration. After carefulconsideration of the facts, I am not inclined to agreewith the contentions of the appellant. The contributionmade by the appellant to a trust which is registeredU/s 12AA and also granted a certificate U/s 80G is notan expenditure within the meaning of section 37(1) ofthe IT Act. The fact remains that the assessee has notincurred any expenditure itself on healthcare of milchanimals, improvement of breed, supply of nutritionalsupplements etc. and amount is in the nature ofcontribution/donation to a trust. The decision of SriVenkata Satyanarayan Rice mills Contractor Co (233ITR 101) relied upon by the appellant was rendered indifferent context since in the cited case, thecontribution to Andhra Pradesh Welfare Fund wasprecondition for grant of export permits and withoutit, the assessee could not have been in a position tocarry its business. In the case of Mysore Kirloskar Ltd(166 ITR 836), the tribunal had disallowed theexpenditure to an educational trust on the groundthat since the school run by the trust was also open tothe children of the persons who were not theemployees of the assessee, the expenditure incurredby the assessee could not be said to have beenincurred wholly and exclusively for the purpose of theassessee’s business. Moreover, since the Tribunal hadnot recorded a finding as to whether the donationmade by the assessee to the trust could be consideredas “expenditure”, the matter was remanded to theTribunal for decision afresh. However in order toqualify for deduction U/s 37(1), the appellant has todemonstrate that expenditure was laid out fully andexclusively for its business and what was thecommercial and business expediency as observed byHon’ble Court in the case of Sri VenkataSatyanarayana Rice mills Co (supra). In the case ofSeason Rubber Ltd Vs CIT (311 ITR 15), the assesseemade contributions to a school and a hospitaldevelopment committee and claimed that they weredeductible. The Assessing Officer and the Tribunal rejected the claim. On a reference, it was held byHon’ble Kerala High Court that even though theassessee’s employees were getting treatment fromthe hospital and the employees’ children werestudents in the school which got the benefit, thebenefit, if at all, was quite remote. It was thereforeheld that the amounts contributed were not deductibleunder section 37. In the case of CIT Vs IndustrialCorporation of Orissa Ltd (249 ITR 401), It was heldthat the onus of Proof that a particular expenditurelaid out or expended is for the purpose of thebusiness or not is on the assessee. In the cited case,there was nothing on record to establish that thedonation of the amount to the Chief Minister’s ReliefFund was directly connected with and related tocarrying on its business. No such finding had alsobeen recorded by the Tribunal. As the opposite partyhad failed to lay necessary factual matrix for itsentitlement to deduction, it was not entitled to thededuction of the donation U/s 37 of the I T Act. It washeld by Hon’ble Rajasthan High Court in the case ofJaswant Trading Co & Anil Trading Co Vs CIT (212 ITR24) that provisions of section 37 of the Income-taxAct are general in nature and the provisions of section80G are specific. Applying the maxim generaliaspecialibus non derogant if an amount is liable fordeduction under section 80G, it cannot be claimedunder the general provisions of section 37(1) of theAct. If a particular amount of expenditure falls withinthe category of donation, then the deduction asprovided under section 80G alone is applicable. Forthe purpose of claiming the benefit under section37(1), it has to be proved that the expenditure waswholly and exclusively for the purpose of business.There may be a circumstance where an expenditurefalls within the category of “wholly and exclusively forthe purpose of business or profession” and also undersection 80G. In that case the option remains with theassessee to claim the expenditure under either of theaforesaid sections. But where there is no direct nexusto prove that it is wholly and exclusively for thepurpose of business or profession, then it cannot beclaimed under section 37(1). A future hope foradvantage is in the nature of an expectation. Therequirement of the section is that there must be abusiness in existence and the expenditure is whollyand exclusively for the purpose of business. In thecited case, the assessee, who claimed to be aprominent businessman of a locality, made donationsto various institutions like the Rotary Club, a sewamandal, a trust and to the Chief Minister’s Droughtand Flood Relief Fund and claimed deduction of the same as business of the assessee had increased. TheTribunal found that since there was no scheme orprovision for relief to the affected employees of theassessee due to the floods, there was no nexusbetween the donation and the assessee’s businessand hence the assessee was not entitled to deductionof the expenditure under section 37 of the Act butwas entitled to deduction of 50 percent of theexpenditure as provided in section 80G of the Act. Ona reference, it was held by Jurisdictional High Courtthat there was no direct nexus established betweenthe expenditure by way of donations and the businessof the assessee and hence the expenditure was notallowable under section 37(1), but 50 percentdeduction was allowable under section 80G. In thepresent case, the appellant has tried to twist the factsby stating that amount of Rs. 89,67,327/- was in thenature of reimbursement of expenses borne by thetrust. However as stated by the AO, the assessee wassimply contributing to the trust at the rate of Rs.0.05per litre of milk in terms of clause 6(d) of the trustdeed. There was no reimbursement of expenditure asalleged. From the audited accounts of Sparsh trust forAY 08-09, it is seen that out of total expenditure of Rs80.35 lakhs, a meager amount of Rs 77,860/- wasspent on vaccines of animals. The majority of theexpenditure was in the nature of honorarium, workincentives and vehicle maintenance. Therefore therewas no business expediency as alleged by theassessee. Respectfully following the above decision,the addition of Rs 89,67,327/- made by the AO isconfirmed. Since the payment to trust is eligible fordeduction U/s 80G, the AO is directed to allow thesame after due verification subject to fulfillment ofother requirements as per law. This ground of appelais partly allowed. 4. In the third ground of appeal, the appellant haschallenged the addition of Rs 3,23,670/- on accountof disallowance of contribution to Vikas Yojana Fund.Before me, the counsel of the appellant has arguedthat the assessee for development of dairy activity atgrass root level embarked upon various plandevelopment strategies and programme to increasethe volume of production. For increasing theprocurement of mild and protecting the dairy farmersfrom the threat of private mild vendors, the assesseegave incentives to village level mild animalowners/societies to become its member. For thispurpose, it gave incentives @ Rs.90 per person andRs.5000/- per society who got registered with it.During the year, the assessee had incurred 4. In the third ground of appeal, the appellant haschallenged the addition of Rs 3,23,670/- on accountof disallowance of contribution to Vikas Yojana Fund.Before me, the counsel of the appellant has arguedthat the assessee for development of dairy activity atgrass root level embarked upon various plandevelopment strategies and programme to increasethe volume of production. For increasing theprocurement of mild and protecting the dairy farmersfrom the threat of private mild vendors, the assesseegave incentives to village level mild animalowners/societies to become its member. For thispurpose, it gave incentives @ Rs.90 per person andRs.5000/- per society who got registered with it.During the year, the assessee had incurred expenditure of Rs.3,23,670/- for this purpose bydebiting it under the head Vikas Yojna Fund. The AOdisallowed the same by observing that the assesseehad not detailed as to what activities were carried onby it by making payment to Vikas Yojna Fund andtherefore it couldn’t be said to be incidental to thebusiness of the assessee. It was argued that theexpenditure claimed under Vikas Yojna Fund was notany contribution but actual expenditure incurred forregistering the members and the societies at thevillage level for which certain incentives/subsidieswere given to ensure the regular procurement of themilk from these persons/societies. This was evidentfrom the expenditure vouchers. Thus the expenditurewas incurred wholly and exclusively for the purpose ofthe business and allowable U/s 37(1). It was alsopointed out that as a part of the overall developmentof the dairy activities in the state, the assesseereceived grants for revival of the societies from theApex Society i.e. Rajasthan Co-operative DairyFederation Limited. These grants were offered for taxby the assessee. These grants were also utilized forenrolling the members/societies at the village level forwhich expenditure was debited under the head VikasYojna Fund. This was evident from the vouchersplaced by the assessee. Thus when the grants hadbeen considered as income, the expenditure incurredagainst these grants was to be allowed as deduction.In view of the above, the disallowance made by theAO was uncalled for and required to be deleted. 5. In support of his contention he relied on the followingdecisions:- Jaswant Trading Company and Anil TradingCompany vs. Commissioner of Income Tax(21.07.1994 – RAJHC) [1995] 212 ITR 24(Raj.) 6. We have considered the matter. The Tribunal hasfound that in the case relied upon by the assesseethe donation was made to the Chief Minister'sDrought and Flood Relief Fund as there was ascheme/provision of relief to the affected employeesof the assessee due to flood. By observing this, theTribunal said that there was a direct link between thedonation and the benefit derived and the nexus wasestablished with the business. In the present case, itwas found that there is total lack of such business 5. In support of his contention he relied on the followingdecisions:- Jaswant Trading Company and Anil TradingCompany vs. Commissioner of Income Tax(21.07.1994 – RAJHC) [1995] 212 ITR 24(Raj.) 6. We have considered the matter. The Tribunal hasfound that in the case relied upon by the assesseethe donation was made to the Chief Minister'sDrought and Flood Relief Fund as there was ascheme/provision of relief to the affected employeesof the assessee due to flood. By observing this, theTribunal said that there was a direct link between thedonation and the benefit derived and the nexus wasestablished with the business. In the present case, itwas found that there is total lack of such business connection or benefit with the donation made. Therewas no nexus between the donation and thebusiness, therefore, it was considered not as abusiness expenditure. The provisions of Section 37provide that any expenditure (not being expenditureof the nature described in Sections 30 to 36, and notbeing in the nature of capital expenditure orpersonal expenses of the assessee) laid out orexpended wholly and exclusively for the purposes ofthe business or profession shall be allowed incomputing the income chargeable under the head"Profits and gains of business or profession". Thissection has contemplated that it does not apply inrespect of expenditure of the nature described inSections 30 to 36. The requirement of this section isthat the expenditure should be laid out or expendedwholly and exclusively for the purposes of thebusiness or profession and the burden to prove thatthe expenditure incurred by the assessee was whollyand exclusively for the purpose of business orprofession is on the assessee. The assessee hadfailed to prove that the expenditure incurred by itwas exclusively for the purpose of business. 7. Besides the above, the provisions of Section 37are general in nature and the provisions of Section80G are specific. Applying the maxim generaliaspecialibus non derogant if an amount is liable fordeduction under Section 80G it cannot be claimedunder the general provisions of Section 37(1).Section 80G provides that in computing the totalincome of an assessee, there shall be deducted, inaccordance with and subject to the provisions of thissection, an amount equal to fifty per cent of theaggregate of the sums specified in Sub-section (2).If a particular amount of expenditure falls within thecategory of donation, then the deduction as providedunder Section 80G alone is applicable. For thepurpose of claiming the benefit under Section 37(1),it has to be proved that the expenditure was whollyand exclusively for the purpose of business. Thewords "wholly and exclusively" eliminate otherconsiderations and there should not be any disputewith regard to the expenditure that the object of itwas for the necessity of business. There may be acircumstance where an expenditure falls within thecategory of "wholly and exclusively for the purposesof the business or profession" and also under Section80G. In that case, the option remains with theassessee to claim the expenditure under either ofthe aforesaid sections. But where there is no directnexus to prove that it is wholly and exclusively forthe purpose of business or profession, then it cannot be claimed under Section 37(1) of the Act. Thephrase "for the purposes of the business" restrictsthe expenditure for such purpose and not otherwise.A future hope for advantage is in the nature of anexpectation. The requirement of the section is thatthere must be a business in existence and theexpenditure is wholly and exclusively for thepurposes of business. A donation may be havingindirect connection with the business as some futureadvantage might be expected while giving donationto the Chief Minister's Drought and Flood ReliefFunds or it may be for the purpose of egosatisfaction. Besides the Chief Minister's Drought andFlood Relief Funds, both the assessees have givendonation to the Rotary Club, Pali, and Chima BaiLalchand Trust. It has nowhere come on record as toin what manner the business of the assessee hasbeen directly affected and there was a directconnection between the expenditure and thebusiness of the assessee. 8. In these circumstances, we are of the view thatthe Tribunal was justified in holding that there wasno nexus established in this case between thedonation on the one hand and the businessperspective of the firm on the other and, therefore,the same was not allowable as business expenditureunder Section 37(1) of the Income Tax Act and only50 per cent deduction under Section 80G wasallowable.the Tribunal was justified in holding that there wasno nexus established in this case between thedonation on the one hand and the businessperspective of the firm on the other and, therefore,the same was not allowable as business expenditureunder Section 37(1) of the Income Tax Act and only50 per cent deduction under Section 80G wasallowable. Commissioner of Income Tax vs. Mafatlal FineSpinning andManufacturingCo.Ltd.(05.02.2003 – BOMHC), [2003] 263 ITR 140(Bom). 6. As regards question No. 3 is concerned, Mr. R. V.Desai, learned senior counsel appearing on behalf ofthe Revenue, relied upon the decision of this court inthe case of CIT v. New Shorrock Spg. and Mfg. Co.Ltd. [1995]212ITR355(Bom) , wherein it is held thatthe ceiling specified in Sub-section (4) of Section80G applies to the aggregate of the sums in respectof which deduction is claimed and not to the amountof deduction allowed under Sub-section (1) ofSection 80G of the Income Tax Act. 7. In the present case, the Tribunal following thedecision of the Andhra Pradesh High Court in thecase of Hyderabad Race Club v. Addl. CIT[1979]120ITR185(AP) , held that the ceiling laid down by Sub-section (4) was applicable not to theaggregate amount in respect of which the deductionwas claimed but to the amount deductible underSub-section (1) of Section 80G. However, this courtin the case of CIT v. New Shorrock Spg. and Mfg. Co.Ltd. [1995]212ITR355(Bom) has disagreed with thedecision of the Andhra Pradesh High Court in thecase of Hyderabad Race Club [1979]120ITR185(AP)and held that the ceiling specified in Sub-section (4)applies to the aggregate of the sums in respect ofwhich deduction is claimed and not to the amount ofdeduction allowed under Sub-section (1) which hasto be computed in the manner specified therein. Inthis view of the matter, we answer question No. 3 inthe negative and in favour of the Revenue. Malayala Manorama Co. Ltd. vs. Commissionerof Income Tax (13.12.2005 – KERHC), [2006]284 ITR 69 (Ker) Malayala Manorama Co. Ltd. vs. Commissionerof Income Tax (13.12.2005 – KERHC), [2006]284 ITR 69 (Ker) 13. We are of the view the abovementioneddecisions are not applicable to the facts of this caseand to some extent we differ from the decisionreported in Madras Refineries Ltd.'s case (supra). Wehave already pointed out on facts, the amountcontributed by the assessee to the relief fund wasnot utilised wholly or exclusively for its businesspurpose. The mere fact that indirectly the assesseeearned goodwill of the victims and the general publicdoes not mean that the expenditure incurred by theassessee was wholly or exclusively for businesspurpose. Section 37(1) would apply only in a casewhere expenditure is laid out or expended wholly orexclusively for the purpose of assessee's business.Amount contributed by the assessee in the presentcase may bring goodwill or enhance reputation ofthe assessee among the general public as a goodphilanthropist and in that process it may boost itsbusiness. But that by itself would not be sufficient toclaim any deduction under Section 37(1). Burden isentirely on the assessee to establish that the amountlaid out or expended by the assessee was wholly orexclusively used for the purpose of its business. 14. We have already indicated the object of the trustwas not business promotion and the contributionmade by the assessee also was not utilised forbusiness promotion. In Madras Refineries' case(supra) with due respect, the Court has not properlyexplained the meaning of the words "wholly andexclusively". We have no quarrel about the general proposition made by the Madras High Court. Butunless and until the expenditure laid out orexpended by the assessee is used wholly orexclusively for its business purpose, no deductioncould be made under Section 37(1). Karnataka HighCourt was dealing with a case where the assesseestarted a school for education of children of itsemployees and claimed deduction of the amountspent by it towards business expenditure. The factsof Kamataka. High Court case are entirely differentfrom the facts indicated in this case. There is nocase for the petitioner by making contribution to thetrust, the assessee's employees were in any waybenefited. Travancore Cochin Chemical's case(supra) is a case where the assessee madecontribution to school in which children of itsemployees are studying. It is in. that context theDivision Bench of this Court took the view that thecontribution made by the assessee was anexpenditure wholly and exclusively for the welfare ofits employees and hence was an allowable deductionunder Section 37(1) of the Act. Facts of this casestand on a different footing and the decisions citedby the assessee are, therefore, not. applicable to thefacts of this case. We are, therefore, of the view thatthe contribution made by the assessee would, be anallowable deduction under Section 80G of the IT Actand not under Section 37(1) of the Act. We,therefore, fully concur with the view of the Tribunalon that point. 15. Counsel for the assessee submitted that thefinding of the Tribunal that the claim under Sections80-I and 80-IA for deduction in respect of newundertakings of the assessee at Trivandrum andPalakkad stands covered against the assessee, is notcorrect especially in view of the decision of thisCourt in Malaysia Manorama Co. Ltd. v. CIT (2002)257 HE. 633 . In that case assessee claimedallowance of deduction with respect to its share ofincome from advertisement for the asst. yrs. 1990-91 and 1991-92. This Court took the view that theassessee is entitled to special deduction underSection 80-I of the Act. 15. Counsel for the assessee submitted that thefinding of the Tribunal that the claim under Sections80-I and 80-IA for deduction in respect of newundertakings of the assessee at Trivandrum andPalakkad stands covered against the assessee, is notcorrect especially in view of the decision of thisCourt in Malaysia Manorama Co. Ltd. v. CIT (2002)257 HE. 633 . In that case assessee claimedallowance of deduction with respect to its share ofincome from advertisement for the asst. yrs. 1990-91 and 1991-92. This Court took the view that theassessee is entitled to special deduction underSection 80-I of the Act. 16. Counsel submitted, though this decision wasspecifically pointed out before the Tribunal, Tribunalfailed to consider the same. Counsel appearing forthe assessee also claimed deduction of theexpenditure spent by its executives in the clubs soas to boost the assessee's business. Counselcontended expenditure laid out was exclusively for the purpose of business and hence was an allowablededuction. Counsel also pointed out that the saidissue is covered by the decision reported in OtisElevator Co. (India) Ltd. v. CIT. Counsel submitted,that point was also not properly considered by theTribunal. Counsel, therefore, submitted that in thelight of the above-mentioned decisions those claimsare liable to be allowed by this Court. LearnedCounsel appearing for the Revenue, on the otherhand, contended that if it is a case of non-consideration, then the matter has to go back to theTribunal and this Court without any factualfoundation cannot finally adjudicate those claims.We find force in the contention of the counsel for theRevenue. Under such circumstance, we are inclinedto uphold the order of the Tribunal disallowing theclaim of the assessee under Section 37(1) of the ITAct. With regard to the claims under Sections 80-I,80-IA and claim for expenditure spent by executivesfor business promotion, the matter has to go back tothe Tribunal for fresh consideration. Income-tax appeal is disposed of confirming theorder of the Tribunal with regard to the finding underSection 37(1) of the IT Act and rest of the issues asdirected by this Court would be reconsidered by theTribunal. Season Rubber Ltd. vs. Commissioner ofIncome Tax (15.01.2008 – KERHC), [2009] 311ITR 15 (Ker) 2. We have heard learned Counsel for the applicantand learned standing counsel for the respondent. Wedo not think that the assessee is entitled to theclaim under Section 37(1) of the Act, because theassessee's prospects are not advanced by makingthese contributions. Even though learned Counselcontended that the assessee's employees are gettingtreatment from the hospital and the employees'children are students in the school which got thebenefit we find the benefit, if at all, is quite remoteand not to any person. We, therefore, answer thequestion referred, against the assessee and in favourof the Department. Commissioner of Income Tax vs. Bharat HeavyElectrical Limited (11.09.2012 – DELHC),[2013] 352 ITR 88 (Delhi) 13. Question No. 3 - Whether the expenditureallowed by the impugned order of the Tribunal wasjustified in respect of the donations made by theassessee and claimed as business expenses underSection-37 (1)? Commissioner of Income Tax vs. Bharat HeavyElectrical Limited (11.09.2012 – DELHC),[2013] 352 ITR 88 (Delhi) 13. Question No. 3 - Whether the expenditureallowed by the impugned order of the Tribunal wasjustified in respect of the donations made by theassessee and claimed as business expenses underSection-37 (1)? The assessee had claimed expenditure on account ofdonations under section 80G of the Act in its returns.It had submitted that donations were given tovarious organizations which were laid out orexpanded exclusively for business purposes. Thesedonations were mostly made for the purpose ofpromoting education and had special relevance sincethe assessee had units in townships or places whereaccess to school was extremely limited. The generalobject of educational welfare being undoubtedlycharitable, and linked with the well being of theassessee's employees, the expenditure was correctlyallowed under section 37(1). The AO and the CIThad disallowed the claim originally made undersection 80G. The reasoning of these two lowerauthorities was that the claim was unsupported byany documentary proof with regard to thepermissibility of the deduction and such being thecase, relief of larger deduction as businessexpenditurecouldnotbegranted. 14. The Tribunal accepted the assessee's argumentand held that the payments were made for thepurpose of efficient running of business as theestablishment of assessee functions at variousremote places and was for the purpose of securinglocal support. Furthermore, the Tribunal waspersuaded to uphold the assessee's claim on theground that the assessee's employees were alsolocal residents and that such support by promotingwelfare, was a business expenditure. The learnedcounsel for the assessee supported the decision ofthe Tribunal and also placed reliance upon thejudgment in CIT v. Madras Refineries Ltd., 2004(266) ITR 170. 15. There can be no two opinions that anyexpenditure which is laid out exclusively for businesspurpose and to facilitate profits, and which does nototherwise become permissible under specificsections, can qualify for deduction. In this case,however, the assessee claimed a limited deductionunder Section 80G. It was unable to satisfy the AOwith documentary evidence that the organizations orTrusts or Societies it donated the amounts to, hadthe requisite approval. The necessary certificates to 15. There can be no two opinions that anyexpenditure which is laid out exclusively for businesspurpose and to facilitate profits, and which does nototherwise become permissible under specificsections, can qualify for deduction. In this case,however, the assessee claimed a limited deductionunder Section 80G. It was unable to satisfy the AOwith documentary evidence that the organizations orTrusts or Societies it donated the amounts to, hadthe requisite approval. The necessary certificates to claim deductions under Section 80G were notforthcoming, neither during the assessment nor inthe appellate proceedings. Before the Tribunal, theassessee appears to have argued that what itclaimed as a limited permissible deduction by virtueof Section 80G, and which was not granted onaccount of lack of evidence, could be enlarged asbusiness expenditure in entirety under Section37(1). This Court is unpersuaded by the logic andreasoning of the Tribunal. There is absolutely nodocumentary evidence to show that the amountsinvolved (which are quite substantial) could bedeemed necessary or expedient to promote theassessee's business. While the philanthropic activitysuch as donation are laudable and, in principle,cannot be faulted; however, parting with of largeamounts to "gain local support," per se cannotconstitute deductible business expenditure. For theassessee to have successfully made a claim in termsof section 37 (1), it was not enough for it to assertthe general charitable public welfare benefits thatpotentially would accrue as a consequence of suchdonations. It had to show the particulars of theorganizations which were beneficiaries of suchdonations and also the corresponding expedience inmaking out such donations. The danger in promotingsuch expenditure as having been "laid out"exclusively for business purposes is that it can welldegenerate into an exercise of unregulated activityfor which the Revenue would perforce defer to theassessee's decision on the basis of no discernableprinciple. Parliament having chosen one method ofdealing with donations i.e. as in the case of section80G, the adoption of another route as businessexpenditure would not be permissible. 16. For the above reasons, the Revenue's appealshave to succeed on this point. The amounts claimedas business expenditure for the relevant assessmentyears have to be added back and brought to tax. 6. Counsel for the respondent drew over attention to the observations made by the Tribunal which reads as under:- “7. After considering the submissions, orders of theauthorities below, we find that assessee deserves tosucceed in its ground raised. It is noticed that beforecreating SPARSH, the assessee was doing all these 16. For the above reasons, the Revenue's appealshave to succeed on this point. The amounts claimedas business expenditure for the relevant assessmentyears have to be added back and brought to tax. 6. Counsel for the respondent drew over attention to the observations made by the Tribunal which reads as under:- “7. After considering the submissions, orders of theauthorities below, we find that assessee deserves tosucceed in its ground raised. It is noticed that beforecreating SPARSH, the assessee was doing all these expenditure itself. Just for betterment ofadministrative services, the assessee created theTrust through whom these expenses are incurred.The Profit & Loss account of the Trust is maintained,copy of which is placed in the compilation and it isseen that whatever the amount has been given byassessee or reimbursed by assessee that has beenspent by the Trust on the animals to get betterquality and quantity of milk. The assessee hadcontributed @ Rs. 0.05 paise per liter of milkprocured to its Trust for the purpose of incurringexpenditure for better quality of milk. An agendanote was prepared which clearly states that thepurpose of contribution is for medical and healthfacility of the animals of the milk producers at theDistrict Level. The contribution made by assessee totrust is thus directly linked with the procurement ofbetter quality, hygienic and more quantity of themilk. It is in the interest of the assessee that themilk animals at the village level from where itprocures the milk are healthy & for this purpose,SPARSH trust incurred expenditure in providingvaternity care, regular treatment, emergency care,preventive care, breed improvement through A.I.uninterrupted supply of nutritional supplements etc.Therefore, in our considered view, contribution madeby assessee to this trust is an expenditure incurredwholly and exclusively for the purpose of businesswhich is allowable under section 37(1). From theIncome and Expenditure account of the Trust, it canbe noted that it has incurred an expenditure of Rs.80,35,447/- in pursuance of its objective and afterconsidering the receipts, there is a deficit of Rs.23,48,303/- to the trust in the year underconsideration. Such deficit is met out of thecontribution made by the assessee to the trust. It isfurther seen that before creating this Trust, theassessee was incurring all these expenses itself andall theses expenses were allowed by the departmentwhile completing assessment under section 143(3).Therefore, this is not a case that assessee has madeany donation to any Trust and, therefore, the samecannot be allowed as business expenditure. The ld.CIT (A) has disallowed the claim of the assessee byobserving that since assessee has made donationunder section 80G and, therefore, deduction undersection 80G is allowable whereas the facts areotherwise. The assessee has not made any donationbut has contributed to the trust for a specificpurpose i.e. to incur the expenditure to get bettermilk from milk animal. Various case laws relied uponby assessee are in support of the case of the assessee. We are not going into detail in respect tothose cases as they have already been mentioned inthe written submissions which are reproduced hereinabove. In view of these facts and circumstances, wehold that the expenditure/contribution made byassessee is allowable as business expenditure.Accordingly, the addition made and confirmed by thelower authorities is deleted. assessee. We are not going into detail in respect tothose cases as they have already been mentioned inthe written submissions which are reproduced hereinabove. In view of these facts and circumstances, wehold that the expenditure/contribution made byassessee is allowable as business expenditure.Accordingly, the addition made and confirmed by thelower authorities is deleted. 12. After considering the orders of the AO and ld.CIT (A) and written submissions, we find that theassessee deserves to succeed in this ground also. Itis seen that expenditure claimed under the headVikas Yojna Fund is not any contribution but actualexpenditure incurred for registering the membersand the societies at the village level for which certainincentive/subsidy is given to ensure the regularprocurement of milk from these persons/societies. Itis further seen that for the purpose of over-alldevelopment of the dairy in the State assessee hasreceived grant for revival of the societies from theApex Society i.e. Rajasthan Co-operative DairyFederation Limited at Rs. 22,91,920/- which hasbeen offered for taxation by the assessee. Theexpenditure of Rs. 3 lacs or odd has been incurredfor the same purpose i.e. for registering themembers and the societies at village level so thatregular supply of milk from these persons/societiescan be maintained. In view of these facts andcircumstances, we are of the view that the AO andld. CIT (A) were not justified in not allowing theclaim of the assessee. On one hand assessee istaxing the grant received by assessee and on theother hand the expenditure incurred for the samepurpose is not allowed, which is not justified. In viewof the above facts and circumstances, we delete thisaddition also. 7. He relied on the following decisions:- M/s. Sri Venkata Satyanarayana Rice MillContractors Co. vs. Commissioner of IncomeTax, Andhra Pradesh, II (25.10.1996 - SC)(1997) 223 ITR 0101 5. The principles for determining whether such apayment can be regarded as being allowable asbusiness expense are, in our opinion, well settled. Aslong ago as in the case of Atherton v. British Insulatedand Helsby Cables Ltd., 10 TC 155 191 (HL) it was observed that "A sum of money expended, not ofnecessity and with a view to a direct and immediatebenefit to the trade, but voluntarily and on thegrounds of commercial expediency and in orderindirectly to facilitate the carrying on of the business,may yet be expended wholly and exclusively for thepurposes of trade." The aforesaid observation wasquoted with approval by this Court in EasternInvestments Ltd. v. Commissioner of Income Tax,West Bengal [1951]20ITR1(SC) . Again in the case ofThe Commissioner of Income-tax, Bombay v.ChandulalKeshavlalandCo.Petlad[1960]38ITR601(SC) , a similar question arose forconsideration. The assessee who was managing agentwas entitled to commission. It, however, relinquishedpart of the commission which was receivable from themanaging company, inter alia, for the reason that thefinancial condition of the managing company wasunsatisfactory. The question arose whether theamount relinquished was deductable as anexpenditure or not. While upholding the claim forreduction this Court observed at page 50 that "Thus incases like the present one in order to justify deductionthe sum must by given up for reasons of commercialexpediency; it may be voluntary, but so long as it isincurred for the assessee's benefit the deductionwould be claimable ." What, therefore, is to be seen isnot whether it was compulsory for the assessee tomake the payment or not but the correct test is thatof commercial expediency. As long as the paymentwhich is made is for the purposes of the business, andthe payment made is not by way of penalty forinfraction of any law, the same would be allowable asa deduction. 6 . This Court in the case of Commissioner of Income-tax, Gujarat v. S.C. Kothari, [1971]82ITR794(SC) ,was considering a case where the assessee hadsuffered loss in an illegal transaction and the questionarose whether the same could be set off underSection 24 of the Income-tax Act, 1922 against theprofits and gains of speculative transaction. Whileallowing the set off it was observed that if a businessis illegal, neither the profits earned nor the lossesincurred would be enforceable in law but that does nottake the profits out of the taxing statute. Similarly thetaint of illegality of the business cannot detract fromthe losses being taken into account for computation ofthe amounts which can be subjected to tax underSection 10(1) of the 1922 Act. The tax collector, it was observed, cannot be heard to say that he willbring the gross receipts to tax without deductinglosses and the legitimate expenses of the business. Again in the case of Commissioner of Income-tax v.Piara Singh [1980]124ITR40(SC) , a question arosewith regard to the loss sustained by an assessee inthe carrying on of an illegal business. The respondenttherein carried on smuggling activities and wasapprehended by the Indian police while crossing theborder into Pakistan and Rs. 65,000/- in currencynotes were recovered from him. This money wasbeing taken to Pakistan for the purposes ofpurchasing gold which was to be smuggled into India.This amount was con