1984 (8) TMI 136 - AT - Income Tax

Deductions allowed for consultant's payments to National Institute under Income-tax Act

The Tribunal dismissed the revenue's appeals, affirming the allowance of deductions for payments to the National Institute by the individual business ... Business Expenditure, Business Or Profession, Scientific Research, Wholly And Exclusively Issues:Interpretation of section 35(1)(iii) of the Income-tax Act, 1961 regarding deduction of payments to an approved institution for research in social science or statistical research related to the class of business carried on.Determining whether the claim of deduction of payments to the National Institute by an individual business management consultant is admissible under section 35(1)(iii) or section 37 of the Act.Analysis:The appeals before the Appellate Tribunal ITAT Hyderabad-B involved the interpretation of section 35(1)(iii) of the Income-tax Act, 1961, regarding the deduction of payments to an approved institution for research in social science or statistical research related to the class of business carried on. The assessee, an individual business management consultant, claimed deductions for payments made to the National Institute for the assessment years 1979-80 and 1980-81. The Income Tax Officer (ITO) initially disallowed the deductions, arguing that section 35(1)(iii) applies only to business and not to a profession. However, the Appellate Assistant Commissioner (AAC) allowed the deductions, stating that the payments were necessary for the assessee to stay updated in his profession. The revenue appealed against the AAC's decision.The main contention revolved around whether the word 'business' in section 35(1)(iii) includes 'profession'. The departmental representative argued that since the assessee was engaged in a profession and not a business, the provisions of section 35(1)(iii) were not applicable. On the other hand, the assessee's counsel contended that the word 'business' should be interpreted to include 'profession' based on precedents and that the payments were wholly and exclusively for the purpose of the profession. The Tribunal examined the legislative intent behind different sections of the Act and concluded that section 35(1)(iii) specifically pertains to business and not profession.However, the Tribunal further analyzed the alternative ground of whether the payments could be allowed as a deduction under section 37 of the Act. Section 37 allows for the deduction of expenditures laid out wholly and exclusively for the purposes of the business or profession. The Tribunal found that the payments made to the National Institute were essential for the assessee to stay updated in his profession of business management consultancy. Therefore, even if not covered under section 35(1)(iii), the payments were considered admissible deductions under section 37. Consequently, the Tribunal upheld the AAC's decision to allow the deductions on different grounds.In conclusion, the appeals filed by the revenue were dismissed, affirming the allowance of deductions for payments to the National Institute by the individual business management consultant under section 37 of the Income-tax Act, 1961.