AI Drafter 
TaxTMI 
TaxTMI 
2003 (10) TMI 10
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..... Section 40A(9) applies only in such cases when the question arises about any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860, or other institution. Apparently, sub-section (9) of section 40A can only be pressed when such sum is paid by any assessee in his capacity as an employer which means that the expenses are incurred on the basis of relationship of employer and employee and for the welfare of its employees. It cannot be said that the claim to deduction which is the subject-matter of the question framed in this case has anything to do with the object of the assessee as an employer towards the export promotion fund. The contribution towards the export promotion fund is made in his capacity as a manufacturer and trader to further his business interest by serving its export activities and are not made in his status as an employer of the workers. In these circumstances, in our opinion, the substantial question of law as framed above does not arise in this case, but the question of law, wh....
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....cessful in its objects, which led to the participation in the fund. In view thereof, the Tribunal did not agree with the finding of the Commissioner of Income-tax that the expenses incurred by the assessee were not wholly or exclusively for its business purpose. The Tribunal also referred to the decision of the Supreme Court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 wherein the court had said that the expression "wholly or exclusively" cannot be equated with "necessarily". It is not the dire necessity of the business in which expenses incurred can only be considered wholly or exclusively for the purpose of the business. The augmentation of expenses does not fall within the purview of the expression "wholly or exclusively" spent for the purpose of the assessee's business. Undoubtedly, participation in any trade, association or fund set up for advancement of business, which is also carried on by the assessee, interest is primarily for advancing the assessee's own business and not for philanthropic purposes. Essentially the finding, whether the expenses have been incurred wholly or exclusively for the purpose of the assessee's business, is a finding of fac....
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....count Cave L.C. in Atherton's case [1925] 10 TC 155 (HL) and further said: "It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned". The Supreme Court again explained in CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 that the true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. In this connection the Calcutta High Court in Andrew Yule and Co. Ltd. v. CIT [1963] 49 ITR 57 succinctly stated the enquiry to be pursued (headnote): "The manner to apply the test is to ask the question: Has the expense been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration? If the expense is found to bear an element other than the trade or business interest of the assessee the expenditure is not an allowable one. To arrive at the conclusion that the expenditure was dictated solely by business consideration one has to con....
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.... High Court held that in the case before it the donations, which were made by the traders, did not contravene any law nor were the donations made as a penalty for infraction of any law. The merchants had made donations to the Chief Minister's Drought Relief Fund as a matter of commercial expediency to facilitate the obtaining of permits which were necessary for carrying on the export trade. The nature of expenditure was such that benefit to a third party or charity had resulted but that did not disqualify it from being an expenditure incurred wholly and exclusively for the purposes of business. It was allowable under section 37(1) of the Income-tax Act. In this connection we may notice a recent decision of the Supreme Court in Sri Venkata Satyanarayana Rice Mills Contractors Co. v. CIT [1997] 223 ITR 101. The case had arisen in like circumstances. A public welfare fund, viz., District Welfare Fund, was evolved by the rice millers association with the District Collector. Each member proposing to export rice was required to deposit a stated amount in the specified bank. He was required to make application for seeking export permit disclosing the amount deposited by him. On such ap....
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.... or no benefit is actually derived. Nor does the voluntary nature of the expenditure take it out of the purview of section 37(1) if it had nexus with the advancement of the assessee's business and the assessee is motivated to incur the expenditure for advancement of such interest. The receipt of actual benefit is also not necessary. It is not in dispute that the assessee is a manufacturer of textiles. The fund is set up to promote export of textiles and other products, manufactured by the Bhilwara group of industries. That the export of textiles or other products of the assessee does result in advancement of the assessee's business interest cannot be disputed. Thus, contribution to the fund set up for export promotion of products which is also the business of the assessee thus has direct nexus to the advancement of the assessee's business. The fact that the object of the export promotion fund is not confined to the assessee but is open to all whosoever wants to participate cannot alter the character of expenses incurred by way of contribution to such fund by the assessee from his benefit to others' benefit. We have noticed that the contribution made to even drought relief fund w....