1975 (10) TMI 15 - HC - Income Tax

Court allows Rs. 12,137 donation as business expense under Income-tax Act

The High Court held that the donation of Rs. 12,137 for the primary health centre construction was an admissible revenue expenditure u/s 37(1) of the ... Business Loss, Carry Forward And Set Off, Finding Of Fact, Income Tax Act, Previous Year Issues involved: Interpretation of business expenditure u/s 37(1) of the Income-tax Act of 1961 regarding a donation made by the assessee for the construction of a primary health centre building.Judgment Details:Issue 1: Business Expenditure InterpretationThe assessee, a rice mill, claimed a deduction of Rs. 12,137 as business expenditure for constructing a primary health centre building near the mill. The Income-tax Officer disallowed the claim, stating it was a donation for public benefit. The Appellate Assistant Commissioner upheld this decision, considering it capital expenditure. However, the Tribunal viewed business expenditure broadly, including expenses remotely related to business activities. The Tribunal found a direct link between the donation and the business needs of the company, as the employees could benefit from the nearby hospital. The Tribunal emphasized that any expenditure related to the business, even remotely, should be considered business expenditure. Therefore, the Tribunal directed deletion of the expenditure claim.Issue 2: Capital Expenditure CriteriaThe Supreme Court's interpretation in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax highlighted tests to distinguish capital and revenue expenditure. Expenditure for enduring benefit or asset creation is capital, while expenses for running the business are revenue. The case of Lakshmiji Sugar Mills Co. P. Ltd. v Commissioner of Income-tax supported this view, considering repair expenses as revenue. Similarly, in Commissioner of Income-tax v. T. V. Sundaram Iyengar & Sons (P.) Ltd., expenses for land purchase were allowed as business-related. The case of Commissioner of Income-tax v. Associated Cement Companies Ltd. upheld revenue expenses for providing amenities to a town. These tests supported the assessee's claim that the donation for the health centre was business expenditure, as it benefited the workmen and aligned with State laws.Final JudgmentThe High Court held that the donation of Rs. 12,137 for the primary health centre construction was an admissible revenue expenditure u/s 37(1) of the Income-tax Act. The Tribunal's decision was upheld, emphasizing the business-related nature of the donation and its benefit to the employees. The Court awarded costs to the assessee and assessed a hearing fee of Rs. 100. Judge Panda concurred with the judgment.