1984 (11) TMI 110 - AT - Income Tax

Tribunal rules on business expense vs. capital nature, allows donation relief under section 80G.

The Tribunal upheld the Commissioner's decision, determining that the amount of Rs. 21,016 relinquished by the assessee-company qualified as business ... Assessment Year, Business Expenditure, Immovable Property, Movable Property, Textile Mill Issues Involved:1. Whether the amount of Rs. 21,016 relinquished by the assessee-company qualifies as business expenditure.2. Whether the assessee-company is entitled to relief under section 80G of the Income-tax Act, 1961.Detailed Analysis:1. Business Expenditure Qualification:Facts and Background:- An immovable property was acquired in 1946 on behalf of the Indore Mill Owners Association, which included the assessee-company, Hukamchand Mills Ltd.- The property was purchased in the name of the association's President and Vice-President for Rs. 76,000, with the assessee contributing Rs. 17,899.15.- In 1968, the association, now known as Madhya Pradesh Textile Mills Association, intended to sell part of the property, and the assessee relinquished its claim on the land.- In 1970, the assessee passed a resolution to relinquish its share in the property as a contribution to the association for the advancement of the textile industry in Madhya Pradesh.- The amount of Rs. 21,016 was debited to the profit and loss account as a business expenditure.Commissioner (Appeals) Decision:- The Commissioner (Appeals) held that the relinquishment did not require reconveyance since the original deed was in the association's name.- The contribution was made to promote the textile industry, benefiting the assessee as a founder member of the association.- The Commissioner relied on the Supreme Court's principles in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, concluding that the contribution had a direct bearing on the interests of the assessee and should be treated as business expenditure.Arguments and Tribunal's Decision:- The revenue argued that the expenditure was capital in nature and not incurred wholly and exclusively for business purposes, citing M.S.P. Senthikumara Nadar & Sons v. CIT [1957] 32 ITR 138.- The assessee argued that the property was always in the association's name, and the resolution in 1970 formalized the relinquishment, making it a business expenditure.- The Tribunal found that the property was always in the association's name, and the expenditure was incurred in 1970 when the resolution was passed.- The Tribunal upheld the Commissioner's decision, stating that the expenditure was laid out wholly and exclusively for business purposes and did not create a capital asset for the assessee.Supporting Case Laws:- The Tribunal referenced several case laws supporting the assessee's claim, including CIT v. T.V. Sundaram Iyengar & Sons (P.) Ltd. [1974] 95 ITR 428 and CIT v. Excel Industries Ltd. [1980] 122 ITR 995, which dealt with similar issues of contributions made for business purposes.2. Relief under Section 80G:Alternative Claim:- The assessee filed a cross-objection, claiming relief under section 80G if the contribution was not accepted as business expenditure.- The Tribunal, considering the decisions in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478, CIT v. Traub (India) (P.) Ltd. [1979] 118 ITR 525, and CIT v. Khandelwal Laboratories (P.) Ltd. [1979] 118 ITR 531, held that donations in kind were eligible for relief under section 80G.Tribunal's Conclusion:- The Tribunal allowed the assessee's cross-objection, affirming that the claim for relief under section 80G was valid for donations made in kind, applicable for the assessment year in question.Final Decision:- The revenue's appeal was dismissed.- The assessee's cross-objection was allowed, confirming that the contribution qualified as business expenditure and, alternatively, was eligible for relief under section 80G.