TaxTMI 
TaxTMI 
2009 (3) TMI 225
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....nts for which it had been set up and as such the expenditure incurred during the course of the business ought to have been allowed as deduction under s. 37(1) of the Act. (4) That it is contended that the appellant is engaged in the business and the expenditure on direct operation is nothing but application of income and expenditure incurred in the course of the business for which it had been established and set up. Accordingly, the expenditure on direct operation is an allowable expenses under s. 37 of the Act. (5) That in the alternative and without prejudice to each of the aforesaid grounds, in the event, if it is held that the aforesaid expenditure was merely grants in aid and could not be allowed as deduction, then, there could not have been any assessment made as a "person" under the IT Act, 1961 and the assessment made is illegal and without jurisdiction. (6) That the outgoings on account of grants in aid are outgoings in the process of earning income and not an outgoing out of income having been earned. It is contended that the expenditure has been incurred in accordance with the objects of OIDB and as such an expenditure incurred is during the ordinary course of i....
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....shed and set up. Accordingly, the expenditure on direct operation is an allowable expense under s. 37 of the Act. (7) That in the alternative and without prejudice to each of the aforesaid grounds, in the event, if it is held that the aforesaid expenditure was merely grants in aid and could not be allowed as deduction, then, there could not have been any assessment made as a "person" under the IT Act, 1961 and the assessment made is illegal and without jurisdiction. (8) That the outgoings on account of grants in aid are outgoings in the process of earning income and not an outgoing out of income having been earned. It is contended that the expenditure has been incurred in accordance with the objects of OIDB and as such an expenditure incurred is during the ordinary course of its business. (9) The provisions of s. 234B has no application in the instant case. (10) The interest calculations under s. 234B are wrong and require revision. (11) The above grounds are independent and without prejudice to one another. (12) The appellant reserves its right to make addition, alteration, modification and withdrawal of any of its grounds at the time of hearing. 2. The assess....
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....p; 2002-03 ------------------------------------------------------------ 1. Balmer Lawrie & Co. Ltd. 1,75,71,000.00 ------------------------------------------------------------ 2. Centre for High Technology 7,87,71,500.00 ------------------------------------------------------------ 3. Directorate General of Hydrocarbons 45,03,00,000.00 ------------------------------------------------------------ 4. Indian Institute of Technology 40,00,000.00 ------------------------------------------------------------ 5. Government of Rajasthan. Department of Petrol....
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....p; 3,54,00,330.00 ------------------------------------------------------------ 10. RRL Jorhat 7,77,000.00 ------------------------------------------------------------ TOTAL (A) 84,59,15,679.64 ------------------------------------------------------------ Others ------------------------------------------------------------ 11. C.I.P.E.T. 0.00 ------------------------------------------------------------ 12. P.C.R.....
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....nbsp; TOTAL(A+B) 1,23,07,48,679.64 ------------------------------------------------------------ Financial year 2003-04, asst. yr. 2004-05 ------------------------------------------------------------ Sl. No. Grantee institutions Rs. In crores ------------------------------------------------------------ 1. DGH 31.47 ------------------------------------------------------------ 2. PCRA ....
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.... 4.01 ------------------------------------------------------------ 10. TERI 0.09 ------------------------------------------------------------ Total 77.21 ------------------------------------------------------------ 5. Further sum of Rs. 18.83 crores was paid to State Government as per Note 11 to annual report: "11. Payment of royalty In April, 2003, CCEA approved the proposal of Government to meet its commitment on fiscal stability in PSCs relating to....
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....tion and the meaning which best harmonizes with the subject of the enactment and may not strictly to be grammatical or etymological or may not even in its popular use. 8, He referred to the decision of Hon'ble Supreme Court in the case of Indian Molasses Co. Ltd. vs. CIT (1959) 37 ITR 66 (SC) according to which expenditure has been held to be equal to expense and expenses is money laid out by calculation and intention even though in any use of the word this element may not be present, as one speaks of a joke at another's expense. But the idea of spending in the sense of "paying out or away" money is the primary meaning which is relevant and expenditure is what is paid out or away and is something which is gone irretrievably. Reference was also made to raise the similar proposition to the decision in the case of M.P. Financial Corporation vs. CIT (1986) 51 CTR (MP) 249 : (1987) 165 ITR 765 (MP) and decision of Hon'ble Kerala High Court in the case of CIT vs. N.C. John & Sons Ltd. (1994) 119 CTR (Ker) 461 : (1994) 208 ITR 57 (Ker) to contend that for claiming deduction as an expenditure the amount should have been spent by the assessee as an amount paid out or paid away. To be a p....
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....ri Venkata Satyanarayna Rice Mill Contractors Co. vs. CIT (1997) 137 CTR (SC) 267 : (1997) 223 ITR 101 (SC) and Patnaik & Co. Ltd. vs. CIT (1986) 58 CTR (SC) 92 : (1986) 161 ITR 365 (SC), it was pleaded that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in benefit to the assessee's business has to be regarded as an allowable deduction under s. 37(1). Such a contribution, whether voluntary or at the instance of the authority concern, when made for the benefit of public and not regarded as a payment opposed to public policy should be held allowable as an expenditure. He pleaded that there is no law which prohibits to making such donations and, thus, it was pleaded that benefit of s. 37(1) could not be denied to the assessee when the payment is made for the purpose of assessee's business. 13. It was pleaded that the grants made by the assessee could under no circumstances be regarded as illegal payments or payments opposed to public policy. It is not a case where the money is contributed to a private fund or for the benefit of any individual which could be regarde....
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....ithout any business expediency or business considerations and, thus, these could not have been allowed. In this manner, it was pleaded by learned Departmental Representative that order of the CIT(A) being in accordance with the law should be upheld. 17. We have carefully considered the rival submissions in the light of the material placed before us. No doubt that giving grant has clearly been mentioned in the relevant Act as one of the functions of the Board as described in OIDB Act. Prior to asst. yr. 2002-03, the income of the assessee was exempted by OIDB Act itself. Though in the grounds of appeal first ground taken by the assessee is regarding allowability of such grants under s. 36(1)(xii) of the IT Act, 1961, but learned Authorised Representative has not addressed us on such ground. We will revert on the said section later on after considering the arguments raised by learned Authorised Representative and learned Departmental Representative. 18. As it can be seen from the arguments of the learned Authorised Representative the assessee is claiming such grants as an expenditure incurred by it under s. 37(1) of the Act. Sec. 37(1) of the Act read as under: "37(1): Any e....
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.... of carrying on the business i.e., to enable a person to carry on and earn profit in that business. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profit of the business, but that must also be for the purpose of earning profits of the business and reference can be made to the decision of Hon'ble Supreme Court in the case of Haji Aziz & Abdul Shakoor Brothers vs. CIT (1961) 41 ITR 350 (SC). 23. It has to be remembered that the words "wholly and exclusively" both refer to the expenses incurred by the assessee for the purpose of his business. While determining as to whether the deduction claimed has been wholly and exclusively spent on such business, it is permissible to find out whether the amount has really gone for the purpose of business or not. 24. The word "business" used in s. 37(1) connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose which is carried on with the end in view of making or earning profit. Thus, in order to be deductible under s. 37(1) the expenditure must be incurred for the purpose of the business which was in existence in the....
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....1), the Central Government hereby notifies for the purposes of the said clause, the Oil Industry Development Board established under s. 3 of the Oil Industry (Development) Act, 1974 (47 of 1974) for the development of oil industry, subject to the following conditions, namely: (i) the expenditure, claimed as deductible under the IT Act, 1961, is incurred for the objects and purposes authorised by the Oil Industry (Development) Act, 1974 (47 of 1974); (ii) such expenditure is not in the nature of capital expenditure; (iii) such expenditure is not eligible for deduction under any other provision of the IT Act, 1961; and (iv) a separate account of the expenditure claimed under the said clause is maintained by the Oil Industry Development Board. 2. This notification shall be applicable w.e.f. 1st day of April, 2008, that is, for the asst. yr. 2008-09 and subsequent assessment years. Note-This notification shall not affect any legal proceeding initiated by the Oil Industry Development Board in respect of the asst. yr. 2003-04 to the asst. yr. 2007-08 and such proceeding shall be continued as if this notification had not been issued. &nbs....
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....ent on 14th May, 2003 and has been enacted as Act No. 32 of 2003. This circular explains the substance of the provisions of the Act relating to direct taxes. 31. Deduction for expenditure incurred by entities established under any Central, State or Provincial Act. 31.1 Entities that are created under an Act of Parliament have the basic object and function of carrying on developmental activities in the areas as specified in the said Acts. By the Finance Act, 2001 and Finance Act, 2002, tax exemption of certain bodies set up through an Act of Parliament was withdrawn. Subsequent to the removal of the tax shield, a doubt has arisen that some of the activities having no profit motive being carried on by such entities cannot be said to be business and, therefore, expenditure incurred on such developmental activities may not be allowed as a deduction while computing the income under the head 'Profits and gains of business or profession'. 31.2 The Act has inserted a new cl. (xii) in sub-s. (1) of s. 36 so as to provide that any expenditure (not being capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Centra....
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....Authorised Representative nor learned Departmental Representative has addressed us on the issue as to whether such grants could be allowed under s. 36(1)(xii). However, since this ground has been raised before us, we proceed to adjudicate the same. 30. It has already been held that grants given by the assessee to various entities and royalty of Rs. 18.83 crores given to State Government in asst. yr. 2004-05 (hereinafter referred to as "royalty") though are made as per the objects stated in the relevant Act, but the same cannot be allowed as these grants do not fulfil the criteria or conditions laid down in s. 37(1) of the Act. Sec. 36(1)(xii) was inserted on the statute for a specific purpose and it has been explained in the above-mentioned Circular No. 7 of 2003 [(2003) 184 CTR (St) 33] that this clause is introduced so as to provide that any expenditure "not being capital expenditure" incurred by a corporation or body corporate by whatever name called, constituted or established by Centre or State or Provincial Act for the objects and purposes authorized by the Act under which such corporation or body corporate was constituted or established shall be allowed as a deduction in ....