1993 (4) TMI 22 - HC - Income Tax

Court denies deduction for Rs. 75,000 donation as business expense under Income-tax Act

The court ruled that the payment of Rs. 75,000 to the Tata Refugee Relief Project was not an admissible expenditure under section 37(1) of the Income-tax ... Business Expenditure, Donation To Flood Relief Issues Involved:1. Whether the payment of Rs. 75,000 made by the assessee to Tata Refugee Relief Project is an admissible expenditure u/s 37(1) of the Income-tax Act, 1961.Summary:Issue 1: Admissibility of Expenditure u/s 37(1)The assessee claimed a deduction of Rs. 75,000 paid to the Tata Refugee Relief Project as an allowable expenditure u/s 37(1) of the Income-tax Act, 1961. The assessee argued that the expenditure was necessary to maintain good relations and support the business, particularly given the significant sales and profits from its Patna branch. The Income-tax Officer, Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal rejected the claim, categorizing the payment as a donation rather than a business expenditure.The court examined the scope of 'for the purpose of the business' u/s 37(1), referencing the Supreme Court's interpretation in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, which allows a broad interpretation but with limitations. The court also considered the Supreme Court's decision in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261, emphasizing that the expenditure must be for promoting the business and earning profits, even if incurred voluntarily.The court found no direct nexus between the donation and the business activities of the assessee, distinguishing it from cases like Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379, where donations were directly linked to business benefits. The court concluded that the payment was a clear donation and did not meet the requirements of u/s 37(1).The court also addressed the argument that donations falling under section 80G might also fall under section 37(1), referencing Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836. The court clarified that the onus is on the assessee to prove that the payment, though termed as a donation, is a business expenditure. In this case, the assessee failed to establish such a connection.Conclusion:The court held that the payment of Rs. 75,000 to the Tata Refugee Relief Project was not an admissible expenditure u/s 37(1) of the Income-tax Act, 1961, and answered the question in the negative, in favor of the Revenue and against the assessee. No order as to costs.