Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S. Jaipur Zila Dugadh Utpadak Sahakari Sangh Ltd., Near Gandhi Nagar Railway Station, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 9 / 2018 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s. Jaipur Zila Dugadh Utpadak Sahakari Sangh Ltd., Near Gandhi Nagar Railway Station, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat ____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 05/02/2018 1. By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department and confirmed the order of CIT(A)and modified the order of the AO. 2.Counsel for the appellant has framed following substantialquestions of law:- (i) Whether in the facts and circumstances ofthe case the ITAT was justified law inupholding the deletion of disallowance ofRs.13121958/- paid as contribution to‘Sparsh trust’ registered u/s 12A of theincome tax act, 1961, and treating the sameas business expenditure in place of donationallowable u/s 80G of the I.T. Act, 1961despite the fact that the said receipt ofdonation was declared by the trust asdonationincomeandcorrespondingexpenditure was claimed as application ofincome. (ii) Without prejudice to the above whether itcan be held that the activities of ‘Sparsh Trust’ are entirely for furthering the businessinterest of the assessee more so when theassessee does not exercise any control onthe manner in which the contribution isspent. (iii) Because, in the facts and circumstancesof the case the ITAT was justified law inupholding the deletion of addition ofRs.1448774/- made for depositing theemployees contribution to PF & ESI beyondthe prescribed time limit provided in therespective Act. (iv) Whether in the facts and circumstancesof the case, the Tribunal was justified inholding that the employee’s Contribution toESI & CPF are governed by the provision ofsection 43B and not by section 36(1) (va)r.w.s. 2(24)(x) of IT Act. 3.The facts of the case are that the assessee is a cooperativesociety which is engaged in the business of procurement of milk,processing it to prepare its products and sale thereof. TheAssessing Officer during the course of assessment proceedingsdisallowed the amount of Rs.13121958/- being contribution madeto ‘Sparsh Trust’ Pashudhan Kalyan and Utpadakta SanvardhanSansthan, a trust constituted by the assessee to run programmeand for providing services to farmers who are selling milk toprimary societies from whom assessee procures milk. The costincurred on these programme by the trust are reimbursed byassessee. 4.Now the issues no.1 & 2 are squarely covered by thedecision of this court in D.B. ITA No.122/2016 (Pr. Commissionerof IT Jaipur-II Jaipur vs. M/s. Jaipur Zila Dugdh Utpadak SanghLtd., Jaipur) decided on 11.9.2017 which reads as under:- “1. In all these appeals since identicalquestions of law and facts are involved, theyare decided by this common judgment. 2.By way of these appeals, the appellanthas challenged the judgment and order of theTribunal whereby the Tribunal has allowed theappeal of the assessee. 3.This court while admitting the appealsframed the following questions of law:- 1. D.B. Income Tax Appeal No. 234 /2012 “Whether in the facts in the circumstances of thecase the ITAT was justified in law in deleting theadditions made by the Assessing Officer by way ofdisallowance of Rs. 8967327/- contributed to thetrust registered u/s. 12AA and holding the saidamount to be business expenditure?” 2. D.B. Income Tax Appeal No. 3/ 2016 “1. In all these appeals since identicalquestions of law and facts are involved, theyare decided by this common judgment. 2.By way of these appeals, the appellanthas challenged the judgment and order of theTribunal whereby the Tribunal has allowed theappeal of the assessee. 3.This court while admitting the appealsframed the following questions of law:- 1. D.B. Income Tax Appeal No. 234 /2012 “Whether in the facts in the circumstances of thecase the ITAT was justified in law in deleting theadditions made by the Assessing Officer by way ofdisallowance of Rs. 8967327/- contributed to thetrust registered u/s. 12AA and holding the saidamount to be business expenditure?” 2. D.B. Income Tax Appeal No. 3/ 2016 “Whether the ITAT was justified in law in deletingthe additions made by the Assessing Officer byway of disallowance of Rs.85,66,157/-contributed to the trust registered u/s. 12AA andholding the said amount to be businessexpenditure?” 3. D.B. Income Tax Appeal No. 122/ 2016 “Whether in the facts and circumstances of thecase the ITAT was justified in law in deleting theadditions made by the Assessing Officer by way ofdisallowance of Rs.11407817/-paid ascontribution to ‘Sparsh trush’ registered u/s 12AAof the income tax act, 1961 treating the same isbusiness expenditure in place of donationallowable u/s 80G of the I. T. Act, 1961 despitethe fact that the said receipt of donation wasdeclared by the trust as donation income andcorresponding expenditure was claimed asapplication in income.” 4. D.B. Income Tax Appeal No.218/2016 “Whether in the facts and circumstances of thecase the ITAT was justified in law in deleting theadditions made by the Assessing Officer by way ofdisallowance of Rs.11939836/-paid ascontribution to ‘Sparsh trush’ registered u/s 12AAof the income tax act, 1961 treating the same isbusiness expenditure in place of donationallowable u/s 80G of the I. T. Act, 1961 despitethe fact that the said receipt of donation wasdeclared by the trust as donation income andcorresponding expenditure was claimed asapplication in income.” 5. D.B. Income Tax Appeal No.265/2016 “Whether in the facts and circumstances of thecase the ITAT was justified in law in deleting the additions made by the Assessing Officer by way ofdisallowance of Rs.12363091/-paid ascontribution to ‘Sparsh trush’ registered u/s 12AAof the income tax act, 1961 treating the same isbusiness expenditure in place of donationallowable u/s 80G of the I. T. Act, 1961 despitethe fact that the said receipt of donation wasdeclared by the trust as donation income andcorresponding expenditure was claimed asapplication in income.” 4. Counsel for the appellant Mr. Mathur hastaken us to the order passed by CIT(A)wherein while considering the issue the CIT(A)observed as under:- 5. D.B. Income Tax Appeal No.265/2016 “Whether in the facts and circumstances of thecase the ITAT was justified in law in deleting the additions made by the Assessing Officer by way ofdisallowance of Rs.12363091/-paid ascontribution to ‘Sparsh trush’ registered u/s 12AAof the income tax act, 1961 treating the same isbusiness expenditure in place of donationallowable u/s 80G of the I. T. Act, 1961 despitethe fact that the said receipt of donation wasdeclared by the trust as donation income andcorresponding expenditure was claimed asapplication in income.” 4. Counsel for the appellant Mr. Mathur hastaken 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 ofthe appellant. The appellant is a co-operativesociety engaged in the business ofprocurement of mild and processing it toprepare milk products. To procure the betterquality and quantity of milk, the assessee wasproviding various facilities to the milch animalowners such as vaccination & medicaltreatment of animals, emergency services etc.Earlier all these services were provided by theassessee itself but considering difficulties inmanagement and control, it was decided tocreate a trust for this purpose. Accordingly, atrust in the name of Pasudhan Kalyan andUpbhokta Samvardhan on 12.03.2004. TheSparsh trust was registered U/s 12AA and alsogranted certificate U/s 80G. The said trust hadallegedly carried out various programs in thefield of animal productivity enhancement.Accordingly the appellant had contributedamount of Rs.89,67,327/- to this trust duringthe year under consideration. After carefulconsideration of the facts, I am not inclined toagree with the contentions of the appellant.The contribution made by the appellant to atrust which is registered U/s 12AA and alsogranted a certificate U/s 80G is not anexpenditure within the meaning of section37(1) of the IT Act. The fact remains that theassessee has not incurred any expenditureitself on healthcare of milch animals,improvement of breed, supply of nutritionalsupplements etc. and amount is in the natureof contribution/donation to a trust. Thedecision of Sri Venkata Satyanarayan Ricemills Contractor Co (233 ITR 101) relied uponby the appellant was rendered in differentcontext since in the cited case, thecontribution to Andhra Pradesh Welfare Fundwas precondition for grant of export permits and without it, the assessee could not havebeen in a position to carry its business. In thecase of Mysore Kirloskar Ltd (166 ITR 836),the tribunal had disallowed the expenditure toan educational trust on the ground that sincethe school run by the trust was also open tothe children of the persons who were not theemployees of the assessee, the expenditureincurred by the assessee could not be said tohave been incurred wholly and exclusively forthe purpose of the assessee’s business.Moreover, since the Tribunal had not recordeda finding as to whether the donation made bythe assessee to the trust could be consideredas “expenditure”, the matter was remanded tothe Tribunal for decision afresh. However inorder to qualify for deduction U/s 37(1), theappellant has to demonstrate that expenditurewas laid out fully and exclusively for itsbusiness and what was the commercial andbusiness expediency as observed by Hon’bleCourt in the case of Sri VenkataSatyanarayana Rice mills Co (supra). In thecase of Season Rubber Ltd Vs CIT (311 ITR15), the assessee made contributions to aschool and a hospital development committeeand claimed that they were deductible. TheAssessing Officer and the Tribunal rejected theclaim. On a reference, it was held by Hon’bleKerala High Court that even though theassessee’s employees were getting treatmentfrom the hospital and the employees’ childrenwere students in the school which got thebenefit, the benefit, if at all, was quite remote.It was therefore held that the amountscontributed were not deductible under section37. In the case of CIT Vs IndustrialCorporation of Orissa Ltd (249 ITR 401), Itwas held that the onus of Proof that aparticular expenditure laid out or expended isfor the purpose of the business or not is onthe assessee. In the cited case, there wasnothing on record to establish that thedonation of the amount to the Chief Minister’sRelief Fund was directly connected with andrelated to carrying on its business. No suchfinding had also been recorded by theTribunal. As the opposite party had failed tolay necessary factual matrix for its entitlementto deduction, it was not entitled to thededuction of the donation U/s 37 of the I TAct. It was held by Hon’ble Rajasthan HighCourt in the case of Jaswant Trading Co & AnilTrading Co Vs CIT (212 ITR 24) that provisions of section 37 of the Income-tax Act aregeneral in nature and the provisions of section80G are specific. Applying the maximgeneralia specialibus non derogant if anamount is liable for deduction under section80G, it cannot be claimed under the generalprovisions of section 37(1) of the Act. If aparticular amount of expenditure falls withinthe category of donation, then the deductionas provided under section 80G alone isapplicable. For the purpose of claiming thebenefit under section 37(1), it has to beproved that the expenditure was wholly andexclusively for the purpose of business. Theremay be a circumstance where an expenditurefalls within the category of “wholly andexclusively for the purpose of business orprofession” and also under section 80G. Inthat case the option remains with the assesseeto claim the expenditure under either of theaforesaid sections. But where there is nodirect nexus to prove that it is wholly andexclusively for the purpose of business orprofession, then it cannot be claimed undersection 37(1). A future hope for advantage isin the nature of an expectation. Therequirement of the section is that there mustbe a business in existence and the expenditureis wholly and exclusively for the purpose ofbusiness. In the cited case, the assessee, whoclaimed to be a prominent businessman of alocality, made donations to various institutionslike the Rotary Club, a sewa mandal, a trustand to the Chief Minister’s Drought and FloodRelief Fund and claimed deduction of the sameas business of the assessee had increased.The Tribunal found that since there was noscheme or provision for relief to the affectedemployees of the assessee due to the floods,there was no nexus between the donation andthe assessee’s business and hence theassessee was not entitled to deduction of theexpenditure under section 37 of the Act butwas entitled to deduction of 50 percent of theexpenditure as provided in section 80G of theAct. On a reference, it was held byJurisdictional High Court that there was nodirect nexus established between theexpenditure by way of donations and thebusiness of the assessee and hence theexpenditure was not allowable under section37(1), but 50 percent deduction was allowableunder section 80G. In the present case, theappellant has tried to twist the facts by stating that amount of Rs. 89,67,327/- was in thenature of reimbursement of expenses borne bythe trust. However as stated by the AO, theassessee was simply contributing to the trustat the rate of Rs.0.05 per litre of milk in termsof clause 6(d) of the trust deed. There was noreimbursement of expenditure as alleged.From the audited accounts of Sparsh trust forAY 08-09, it is seen that out of totalexpenditure of Rs 80.35 lakhs, a meageramount of Rs 77,860/- was spent on vaccinesof animals. The majority of the expenditurewas in the nature of honorarium, workincentives and vehicle maintenance. Thereforethere was no business expediency as allegedby the assessee. Respectfully following theabove decision, the addition of Rs 89,67,327/-made by the AO is confirmed. Since thepayment to trust is eligible for deduction U/s80G, the AO is directed to allow the sameafter due verification subject to fulfillment ofother requirements as per law. This ground ofappela is partly allowed. 4. In the third ground of appeal, the appellanthas challenged the addition of Rs 3,23,670/-on account of disallowance of contribution toVikas Yojana Fund. Before me, the counsel ofthe appellant has argued that the assessee fordevelopment of dairy activity at grass rootlevelembarkeduponvariousplandevelopment strategies and programme toincrease the volume of production. Forincreasing the procurement of mild andprotecting the dairy farmers from the threat ofprivate mild vendors, the assessee gaveincentives to village level mild animalowners/societies to become its member. Forthis purpose, it gave incentives @ Rs.90 perperson and Rs.5000/- per society who gotregistered with it. During the year, theassessee had incurred expenditure ofRs.3,23,670/- for this purpose by debiting itunder the head Vikas Yojna Fund. The AOdisallowed the same by observing that theassessee had not detailed as to what activitieswere carried on by it by making payment toVikas Yojna Fund and therefore it couldn’t besaid to be incidental to the business of theassessee. It was argued that the expenditureclaimed under Vikas Yojna Fund was not anycontribution but actual expenditure incurredfor registering the members and the societiesat the village level for which certainincentives/subsidies were given to ensure the regular procurement of the milk from thesepersons/societies. This was evident from theexpenditure vouchers. Thus the expenditurewas incurred wholly and exclusively for thepurpose of the business and allowable U/s37(1). It was also pointed out that as a part ofthe overall development of the dairy activitiesin the state, the assessee received grants forrevival of the societies from the Apex Societyi.e. Rajasthan Co-operative Dairy FederationLimited. These grants were offered for tax bythe assessee. These grants were also utilizedfor enrolling the members/societies at thevillage level for which expenditure was debitedunder the head Vikas Yojna Fund. This wasevident from the vouchers placed by theassessee. Thus when the grants had beenconsidered as income, the expenditureincurred against these grants was to beallowed as deduction. In view of the above,the disallowance made by the AO was uncalledfor and required to be deleted. 5. In support of his contention he relied on thefollowing decisions:- Jaswant Trading Company and AnilTrading Company vs. Commissioner ofIncome Tax (21.07.1994 – RAJHC)[1995] 212 ITR 24 (Raj.) 6. We have considered the matter. The Tribunal has found that in the case relied uponby the assessee the donation was made to theChief Minister's Drought and Flood Relief Fundas there was a scheme/provision of relief tothe affected employees of the assessee due toflood. By observing this, the Tribunal said thatthere was a direct link between the donationand the benefit derived and the nexus wasestablished with the business. In the presentcase, it was found that there is total lack ofsuch business connection or benefit with thedonation made. There was no nexus betweenthe donation and the business, therefore, itwas considered not as a business expenditure.The provisions of Section 37 provide that anyexpenditure (not being expenditure of thenature 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 thepurposes of the business or profession shall beallowed in computing the income chargeableunder the head "Profits and gains of businessor profession". This section has contemplated that it does not apply in respect of expenditureof the nature described in Sections 30 to 36.The requirement of this section is that theexpenditure should be laid out or expendedwholly and exclusively for the purposes of thebusiness or profession and the burden toprove that the expenditure incurred by theassessee was wholly and exclusively for thepurpose of business or profession is on theassessee. The assessee had failed to provethat the expenditure incurred by it wasexclusively for the purpose of business. 7. Besides the above, the provisions of Section37 are general in nature and the provisions ofSection 80G are specific. Applying the maximgeneralia specialibus non derogant if anamount is liable for deduction under Section80G it cannot be claimed under the generalprovisions of Section 37(1). Section 80Gprovides that in computing the total income ofan assessee, there shall be deducted, inaccordance with and subject to the provisionsof this section, an amount equal to fifty percent of the aggregate of the sums specified inSub-section (2). If a particular amount ofexpenditure falls within the category ofdonation, then the deduction as providedunder Section 80G alone is applicable. For thepurpose of claiming the benefit under Section37(1), it has to be proved that the expenditurewas wholly and exclusively for the purpose ofbusiness. The words "wholly and exclusively"eliminate other considerations and thereshould not be any dispute with regard to theexpenditure that the object of it was for thenecessity of business. There may be acircumstance where an expenditure falls withinthe category of "wholly and exclusively for thepurposes of the business or profession" andalso under Section 80G. In that case, theoption remains with the assessee to claim theexpenditure under either of the aforesaidsections. But where there is no direct nexus toprove that it is wholly and exclusively for thepurpose of business or profession, then itcannot be claimed under Section 37(1) of theAct. The phrase "for the purposes of thebusiness" restricts the expenditure for suchpurpose and not otherwise. A future hope foradvantage is in the nature of an expectation.The requirement of the section is that theremust be a business in existence and theexpenditure is wholly and exclusively for thepurposes of business. A donation may be having indirect connection with the businessas some future advantage might be expectedwhile giving donation to the Chief Minister'sDrought and Flood Relief Funds or it may befor the purpose of ego satisfaction. Besidesthe Chief Minister's Drought and Flood ReliefFunds, both the assessees have givendonation to the Rotary Club, Pali, and ChimaBai Lalchand Trust. It has nowhere come onrecord as to in what manner the business ofthe assessee has been directly affected andthere was a direct connection between theexpenditure and the business of the assessee. 8. In these circumstances, we are of the viewthat the Tribunal was justified in holding thatthere was no nexus established in this casebetween the donation on the one hand and thebusiness perspective of the firm on the otherand, therefore, the same was not allowable asbusiness expenditure under Section 37(1) ofthe Income Tax Act and only 50 per centdeduction under Section 80G was allowable. Commissioner of Income Tax vs. MafatlalFine Spinning and Manufacturing Co. Ltd.(05.02.2003 – BOMHC), [2003] 263 ITR140 (Bom). 6. As regards question No. 3 is concerned, Mr.R. V. Desai, learned senior counsel appearingon behalf of the Revenue, relied upon thedecision of this court in the case of CIT v. NewShorrock Spg. and Mfg. Co. Ltd.[1995]212ITR355(Bom) , wherein it is heldthat the ceiling specified in Sub-section (4) ofSection 80G applies to the aggregate of thesums in respect of which deduction is claimedand not to the amount of deduction allowedunder Sub-section (1) of Section 80G of theIncome Tax Act. Commissioner of Income Tax vs. MafatlalFine Spinning and Manufacturing Co. Ltd.(05.02.2003 – BOMHC), [2003] 263 ITR140 (Bom). 6. As regards question No. 3 is concerned, Mr.R. V. Desai, learned senior counsel appearingon behalf of the Revenue, relied upon thedecision of this court in the case of CIT v. NewShorrock Spg. and Mfg. Co. Ltd.[1995]212ITR355(Bom) , wherein it is heldthat the ceiling specified in Sub-section (4) ofSection 80G applies to the aggregate of thesums in respect of which deduction is claimedand not to the amount of deduction allowedunder Sub-section (1) of Section 80G of theIncome Tax Act. 7. In the present case, the Tribunal followingthe decision of the Andhra Pradesh High Courtin the case of Hyderabad Race Club v. Addl.CIT [1979]120ITR185(AP) , held that theceiling laid down by Sub-section (4) wasapplicable not to the aggregate amount inrespect of which the deduction was claimedbut to the amount deductible under Sub-section (1) of Section 80G. However, this courtin the case of CIT v. New Shorrock Spg. andMfg. Co. Ltd. [1995]212ITR355(Bom) hasdisagreed with the decision of the AndhraPradesh High Court in the case of Hyderabad Race Club [1979]120ITR185(AP) and heldthat the ceiling specified in Sub-section (4)applies to the aggregate of the sums inrespect of which deduction is claimed and notto the amount of deduction allowed underSub-section (1) which has to be computed inthe manner specified therein. In this view ofthe matter, we answer question No. 3 in thenegative and in favour of the Revenue. Malayala Manorama Co. Ltd. vs.Commissioner of 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 thiscase and to some extent we differ from thedecision reported in Madras Refineries Ltd.'scase (supra). We have already pointed out onfacts, the amount contributed by the assesseeto the relief fund was not utilised wholly orexclusively for its business purpose. The merefact that indirectly the assessee earnedgoodwill of the victims and the general publicdoes not mean that the expenditure incurredby the assessee was wholly or exclusively forbusiness purpose. Section 37(1) would applyonly in a case where expenditure is laid out orexpended wholly or exclusively for the purposeof assessee's business. Amount contributed bythe assessee in the present case may bringgoodwill or enhance reputation of the assesseeamong the general public as a goodphilanthropist and in that process it may boostits business. But that by itself would not besufficient to claim any deduction under Section37(1). Burden is entirely on the assessee toestablish that the amount laid out or expendedby the assessee was wholly or exclusively usedfor the purpose of its business. 14. We have already indicated the object ofthe trust was not business promotion and thecontribution made by the assessee also wasnot utilised for business promotion. In MadrasRefineries' case (supra) with due respect, theCourt has not properly explained the meaningof the words "wholly and exclusively". Wehave no quarrel about the general propositionmade by the Madras High Court. But unlessand until the expenditure laid out or expendedby the assessee is used wholly or exclusivelyfor its business purpose, no deduction couldbe made under Section 37(1). Karnataka HighCourt was dealing with a case where theassessee started a school for education of 14. We have already indicated the object ofthe trust was not business promotion and thecontribution made by the assessee also wasnot utilised for business promotion. In MadrasRefineries' case (supra) with due respect, theCourt has not properly explained the meaningof the words "wholly and exclusively". Wehave no quarrel about the general propositionmade by the Madras High Court. But unlessand until the expenditure laid out or expendedby the assessee is used wholly or exclusivelyfor its business purpose, no deduction couldbe made under Section 37(1). Karnataka HighCourt was dealing with a case where theassessee started a school for education of children of its employees and claimeddeduction of the amount spent by it towardsbusiness expenditure. The facts of Kamataka.High Court case are entirely different from thefacts indicated in this case. There is no casefor the petitioner by making contribution tothe trust, the assessee's employees were inany way benefited. Travancore CochinChemical's case (supra) is a case where theassessee made contribution to school in whichchildren of its employees are studying. It is in.that context the Division Bench of this Courttook the view that the contribution made bythe assessee was an expenditure wholly andexclusively for the welfare of its employeesand hence was an allowable deduction underSection 37(1) of the Act. Facts of this casestand on a different footing and the decisionscited by the assessee are, therefore, not.applicable to the facts of this case. We are,therefore, of the view that the contributionmade by the assessee would, be an allowablededuction under Section 80G of the IT Act andnot under Section 37(1) of the Act. We,therefore, fully concur with the view of theTribunal on that point. 15. Counsel for the assessee submitted thatthe finding of the Tribunal that the claim underSections 80-I and 80-IA for deduction inrespect of new undertakings of the assessee atTrivandrum and Palakkad stands coveredagainst the assessee, is not correct especiallyin view of the decision of this Court in MalaysiaManorama Co. Ltd. v. CIT (2002) 257 HE.633 . In that case assessee claimed allowanceof deduction with respect to its share ofincome from advertisement for the asst. yrs.1990-91 and 1991-92. This Court took theview that the assessee is entitled to specialdeduction under Section 80-I of the Act. 16. Counsel submitted, though this decisionwas specifically pointed out before theTribunal, Tribunal failed to consider the same.Counsel appearing for the assessee alsoclaimed deduction of the expenditure spent byits executives in the clubs so as to boost theassessee's business. Counsel contendedexpenditure laid out was exclusively forthepurpose of business and hence was anallowable deduction. Counsel also pointed outthat the said issue is covered by the decision reported in Otis Elevator Co. (India) Ltd. v.CIT. Counsel submitted, that point was alsonot properly considered by the Tribunal.Counsel, therefore, submitted that in the lightof the above-mentioned decisions those claimsare liable to be allowed by this Court. LearnedCounsel appearing for the Revenue, on theother hand, contended that if it is a case ofnon-consideration, then the matter has to goback to the Tribunal and this Court withoutany factual foundation cannot finallyadjudicate those claims. We find force in thecontention of the counsel for the Revenue.Under such circumstance, we are inclined touphold the order of the Tribunal disallowingthe claim of the assessee under Section 37(1)of the IT Act. With regard to the claims underSections 80-I, 80-IA and claim for expenditurespent by executives for business promotion,the matter has to go back to the Tribunal forfresh consideration. Income-tax appeal is disposed of confirmingthe order of the Tribunal with regard to thefinding under Section 37(1) of the IT Act andrest of the issues as directed by this Courtwould be reconsidered by the Tribunal. Season Rubber Ltd. vs. Commissioner ofIncome Tax (15.01.2008 – KERHC),[2009] 311 ITR 15 (Ker) 2. We have heard learned Counsel for theapplicant and learned standing counsel for therespondent. We do not think that the assesseeis entitled to the claim under Section 37(1) ofthe Act, because the assessee's prospects arenot advanced by making these contributions.Even though learned Counsel contended thatthe assessee's employees are gettingtreatment from the hospital and theemployees' children are students in the schoolwhich got the benefit we find the benefit, if atall, is quite remote and not to any person. We,therefore, answer the question referred,against the assessee and in favour of theDepartment. Commissioner of Income Tax vs. BharatHeavy Electrical Limited (11.09.2012 –DELHC), [2013] 352 ITR 88 (Delhi) 13. Question No. 3 - Whether the expenditureallowed by the impugned order of the Tribunalwas justified in respect of the donations madeby the assessee and claimed as businessexpenses under Section-37 (1)? The assessee had claimed expenditure onaccount of donations under section 80G of theAct in its returns. It had submitted thatdonations were given to various organizationswhich were laid out or expanded exclusivelyfor business purposes. These donations weremostly made for the purpose of promotingeducation and had special relevance since theassessee had units in townships or placeswhere access to school was extremely limited.The general object of educational welfarebeing undoubtedly charitable, and linked withthe well being of the assessee's employees,the expenditure was correctly allowed undersection 37(1). The AO and the CIT haddisallowed the claim originally made undersection 80G. The reasoning of these two lowerauthorities was that the claim wasunsupported by any documentary proof withregard to the permissibility of the deductionand such being the case, relief of largerdeduction as business expenditure could notbe granted. 14. The Tribunal accepted the assessee'sargument and held that the payments weremade for the purpose of efficient running ofbusiness as the establishment of assesseefunctions at various remote places and was forthe purpose of securing local support.Furthermore, the Tribunal was persuaded touphold the assessee's claim on the groundthat the assessee's employees were also localresidents and that such support by promotingwelfare, was a business expenditure. Thelearned counsel for the assessee supportedthe decision of the Tribunal and also placedreliance upon the judgment in CIT v. MadrasRefineries Ltd., 2004 (266) ITR 170. 15. There can be no two opinions that anyexpenditure which is laid out exclusively forbusiness purpose and to facilitate profits, andwhich does not otherwise become permissibleunder specific sections, can qualify fordeduction. In this case, however, the assesseeclaimed a limited deduction under Section80G. It was unable to satisfy the AO withdocumentary evidence that the organizationsor Trusts or Societies it donated the amountsto, had the requisite approval. The necessarycertificates to claim deductions under Section80G were not forthcoming, neither during theassessment nor in the appellate proceedings. 15. There can be no two opinions that anyexpenditure which is laid out exclusively forbusiness purpose and to facilitate profits, andwhich does not otherwise become permissibleunder specific sections, can qualify fordeduction. In this case, however, the assesseeclaimed a limited deduction under Section80G. It was unable to satisfy the AO withdocumentary evidence that the organizationsor Trusts or Societies it donated the amountsto, had the requisite approval. The necessarycertificates to claim deductions under Section80G were not forthcoming, neither during theassessment nor in the appellate proceedings. Before the Tribunal, the assessee appears tohave argued that what it claimed as a limitedpermissible deduction by virtue of Section80G, and which was not granted on account oflack of evidence, could be enlarged asbusiness expenditure in entirety under Section37(1). This Court is unpersuaded by the logicand reasoning of the Tribunal. There isabsolutely no documentary evidence to showthat the amounts involved (which are quitesubstantial) could be deemed necessary orexpedient to promote the assessee's business.While the philanthropic activity such asdonation are laudable and, in principle, cannotbe faulted; however, parting with of largeamounts to "gain local support," per se cannotconstitute deductible business expenditure.For the assessee to have successfully made aclaim in terms of section 37 (1), it was notenough for it to assert the general charitablepublic welfare benefits that potentially wouldaccrue as a consequence of such donations. Ithad to show the particulars of theorganizations which were beneficiaries of suchdonations and also the correspondingexpedience in making out such donations. Thedanger in promoting such expenditure ashaving been "laid out" exclusively for businesspurposes is that it can well degenerate into anexercise of unregulated activity for which theRevenue would perforce defer to theassessee's decision on the basis of nodiscernable principle. Parliament havingchosen one method of dealing with donationsi.e. as in the case of section 80G, the adoptionof another route as business expenditurewould not be permissible. 16. For the above reasons, the Revenue'sappeals have to succeed on this point. Theamounts claimed as business expenditure forthe relevant assessment years have to beadded back and brought to tax. 6. Counsel for the respondent drew overattention to the observations made by theTribunal which reads as under:- “7. After considering the submissions, ordersof the authorities below, we find that assesseedeserves to succeed in its ground raised. It isnoticed that before creating SPARSH, theassessee was doing all these expenditureitself. Just for betterment of administrativeservices, the assessee created the Trust 16. For the above reasons, the Revenue'sappeals have to succeed on this point. Theamounts claimed as business expenditure forthe relevant assessment years have to beadded back and brought to tax. 6. Counsel for the respondent drew overattention to the observations made by theTribunal which reads as under:- “7. After considering the submissions, ordersof the authorities below, we find that assesseedeserves to succeed in its ground raised. It isnoticed that before creating SPARSH, theassessee was doing all these expenditureitself. Just for betterment of administrativeservices, the assessee created the Trust through whom these expenses are incurred.The Profit & Loss account of the Trust ismaintained, copy of which is placed in thecompilation and it is seen that whatever theamount has been given by assessee orreimbursed by assessee that has been spentby 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 ofincurring expenditure for better quality ofmilk. An agenda note was prepared whichclearly states that the purpose of contributionis for medical and health facility of the animalsof the milk producers at the District Level. Thecontribution made by assessee to trust is thusdirectly linked with the procurement of betterquality, hygienic and more quantity of themilk. It is in the interest of the assessee thatthe milk animals at the village level fromwhere it procures the milk are healthy & forthis purpose, SPARSH trust incurredexpenditure in providing vaternity care,regular treatment, emergency care, preventivecare, breed improvement through A.I.uninterruptedsupplyofnutritionalsupplements etc. Therefore, in our consideredview, contribution made by assessee to thistrust is an expenditure incurred wholly andexclusively for the purpose of business whichis allowable under section 37(1). From theIncome and Expenditure account of the Trust,it can be noted that it has incurred anexpenditure of Rs. 80,35,447/- in pursuanceof its objective and after considering thereceipts, there is a deficit of Rs. 23,48,303/-to the trust in the year under consideration.Such deficit is met out of the contributionmade by the assessee to the trust. It is furtherseen that before creating this Trust, theassessee was incurring all these expensesitself and all theses expenses were allowed bythe department while completing assessmentunder section 143(3). Therefore, this is not acase that assessee has made any donation toany Trust and, therefore, the same cannot beallowed as business expenditure. The ld. CIT(A) has disallowed the claim of the assesseeby observing that since assessee has madedonation under section 80G and, therefore,deduction under section 80G is allowablewhereas the facts are otherwise. The assesseehas not made any donation but hascontributed to the trust for a specific purpose i.e. to incur the expenditure to get better milkfrom milk animal. Various case laws reliedupon by assessee are in support of the case ofthe assessee. We are not going into detail inrespect to those cases as they have alreadybeen mentioned in the written submissionswhich are reproduced herein above. In view ofthese facts and circumstances, we hold thatthe expenditure/contribution made byassessee is allowable as business expenditure.Accordingly, the addition made and confirmedby the lower authorities is deleted. i.e. to incur the expenditure to get better milkfrom milk animal. Various case laws reliedupon by assessee are in support of the case ofthe assessee. We are not going into detail inrespect to those cases as they have alreadybeen mentioned in the written submissionswhich are reproduced herein above. In view ofthese facts and circumstances, we hold thatthe expenditure/contribution made byassessee is allowable as business expenditure.Accordingly, the addition made and confirmedby the lower authorities is deleted. 12. After considering the orders of the AO andld. CIT (A) and written submissions, we findthat the assessee deserves to succeed in thisground also. It is seen that expenditureclaimed under the head Vikas Yojna Fund isnot any contribution but actual expenditureincurred for registering the members and thesocieties at the village level for which certainincentive/subsidy is given to ensure theregular procurement of milk from thesepersons/societies. It is further seen that forthe purpose of over-all development of thedairy in the State assessee has received grantfor revival of the societies from the ApexSociety i.e. Rajasthan Co-operative DairyFederation Limited at Rs. 22,91,920/- whichhas been offered for taxation by the assessee.The expenditure of Rs. 3 lacs or odd has beenincurred for the same purpose i.e. forregistering the members and the societies atvillage level so that regular supply of milkfrom these persons/societies can bemaintained. In view of these facts andcircumstances, we are of the view that the AOand ld. CIT (A) were not justified in notallowing the claim of the assessee. On onehand assessee is taxing the grant received byassessee and on the other hand theexpenditure incurred for the same purpose isnot allowed, which is not justified. In view ofthe above facts and circumstances, we deletethis addition also. 7. He relied on the following decisions:-M/s. Sri Venkata Satyanarayana Rice MillContractors Co. vs. Commissioner ofIncome Tax, Andhra Pradesh, II(25.10.1996 - SC) (1997) 223 ITR 0101 5. The principles for determining whether sucha payment can be regarded as being allowableas business expense are, in our opinion, well 7. He relied on the following decisions:-M/s. Sri Venkata Satyanarayana Rice MillContractors Co. vs. Commissioner ofIncome Tax, Andhra Pradesh, II(25.10.1996 - SC) (1997) 223 ITR 0101 5. The principles for determining whether sucha payment can be regarded as being allowableas business expense are, in our opinion, well settled. As long ago as in the case of Athertonv. British Insulated and Helsby Cables Ltd., 10TC 155 191 (HL) it was observed that "A sumof money expended, not of necessity and witha view to a direct and immediate benefit to thetrade, but voluntarily and on the grounds ofcommercial expediency and in order indirectlyto facilitate the carrying on of the business,may yet be expended wholly and exclusivelyfor the purposes of trade." The aforesaidobservation was quoted with approval by thisCourt in Eastern Investments Ltd. v.Commissioner of Income Tax, West Bengal[1951]20ITR1(SC) . Again in the case of TheCommissioner of Income-tax, Bombay v.Chandulal Keshavlal and Co. Petlad[1960]38ITR601(SC) , a similar question arosefor consideration. The assessee who wasmanaging agent was entitled to commission.It, however, relinquished part of thecommission which was receivable from themanaging company, inter alia, for the reasonthat the financial condition of the managingcompany was unsatisfactory. The questionarose whether the amount relinquished wasdeductable as an expenditure or not. Whileupholding the claim for reduction this Courtobserved at page 50 that "Thus in cases likethe present one in order to justify deductionthe sum must by given up for reasons ofcommercial expediency; it may be voluntary,but so long as it is incurred for the assessee'sbenefit the deduction would be claimable ."What, therefore, is to be seen is not whether itwas compulsory for the assessee to make thepayment or not but the correct test is that ofcommercial expediency. As long as thepayment which is made is for the purposes ofthe business, and the payment made is not byway of penalty for infraction of any law, thesame would be allowable as a deduction. 6 . This Court in the case of Commissioner ofIncome-tax, Gujarat v. S.C. Kothari,[1971]82ITR794(SC) , was considering a casewhere the assessee had suffered loss in anillegal transaction and the question arosewhether the same could be set off underSection 24 of the Income-tax Act, 1922against the profits and gains of speculativetransaction. While allowing the set off it wasobserved that if a business is illegal, neither the profits earned nor the losses incurredwould be enforceable in law but that does nottake the profits out of the taxing statute.Similarly the taint of illegality of the businesscannot detr