2022 (1) TMI 1349 - HC - Income Tax

High Court upholds donation for ring road construction as valid business expense under Income Tax Act

Principal Commissioner of Income Tax-3, Bengaluru Versus M/s. Mysore Minerals Ltd.

The High Court ruled in favor of the assessee, upholding the allowance of a donation for the construction of a ring road as a legitimate expenditure under ... Allowable deduction u/s 37 - donation given to Bellary DC for construction of ring road - assessee is a company engaged in the business of extraction of minerals such as bauxite and limestone etc. - HELD THAT:- The substantial questions of law involved in this appeal have already been answered in favour of the assessee by Supreme Court in 'SRI.VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. COMMISSIONER OF INCOME TAX' [1996 (10) TMI 2 - SUPREME COURT]mere fact that making of a donation for charitable or public cause or in public interest results in the government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount u/s 37(1) of the Act when such payment had been made for the purpose of assessee's business - Also see KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., [2021 (3) TMI 1343 - KARNATAKA HIGH COURT] - Decided in favour of assessee. Issues:1. Allowability of donation as expenditure under Section 37 of the Income Tax Act.2. Fulfillment of conditions for allowing expenditure under Section 37(b) and 37(c).Analysis:1. The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal regarding the allowance of a donation given for the construction of a ring road to Bellary DC as an expenditure under Section 37 of the Income Tax Act for Assessment Year 2009-10. The Tribunal had allowed the appeal based on substantial questions of law raised by the revenue. The High Court referred to the Supreme Court's decision in 'SRI.VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO.' where it was established that contributions made to public welfare funds directly connected to the assessee's business are allowable deductions under Section 37(1) of the Act. The Court also cited a previous judgment in a related matter where similar principles were upheld. Consequently, the High Court ruled against the revenue, upholding the allowance of the donation as a legitimate expenditure under Section 37, following the precedent set by the Supreme Court and the division bench of the High Court.2. The facts of the case involved an assessee engaged in mineral extraction who had filed a return of income for the relevant assessment year. The Assessing Officer's order was set aside by the Commissioner of Income Tax under Section 263, leading to an appeal before the tribunal. The tribunal partially allowed the appeal, prompting the revenue to file the current appeal. The High Court, after considering the arguments from both parties, concluded that the substantial questions of law had already been settled in favor of the assessee based on previous legal precedents. The Court emphasized that when donations are made for public welfare activities related to the assessee's business and result in benefits for the business, they qualify as allowable deductions under Section 37(1) of the Act. As a result, the appeal by the revenue was dismissed, affirming the tribunal's decision and upholding the allowance of the donation as a legitimate business expenditure.