TaxTMI 
TaxTMI 
2018 (12) TMI 762
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....s for the village poor by way of undertaking projects in forestry development, developing water harvesting systems, creating job opportunities amongst tribals/poor villagers etc. For undertaking the said objectives the respondent-assessee had received funding from M/s Indian Farmers Fertilizer Co-operative Ltd., foreign agencies and various governmental bodies. The respondent-assessee had also undertaken trade and marketing of fertilizers, again towards the said objective. The respondent-assessee had performed and undertaken these activities as a business organization and not as a charitable institution. 3. Vide assessment order dated 30.11.2010 for the Assessment Year 2008-09, the Assessing Officer held that the expenses incurred by the respondent-assessee towards the said activities under the head "project expenses" were not deductible under Section 37 (1) of the Act for the following reasons:- "8. The other issue in the case is as to whether the expenditure is laid out wholly and exclusively for the purpose of business. The word "exclusively" refers to the motive, objective and purpose of the expenditure and gives jurisdiction to the taxing authorities to examine these ....
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....d expenditure for rural development, generation of additional employment, women's empowerment and in development and construction of water reservoirs to effectuate and in furtherance of these objectives. The respondent-assessee had accordingly provided financial, technical and extension services to Primary Farm Forestry Cooperative Societies Ltd. and Primary Livelihood Development Cooperative Societies Ltd. This expenditure was clearly incurred to carry out the purpose and objective for which the co-operative society was established; and would qualify for deduction under Section 37 of the Act. Expenditure of such nature had been uniformly and consistently allowed under Sections 28 to 43 of the Act since 1993. Accepting that the expenditure was not capital in nature, it was held that the respondent-assessee had not created any tangible capital assets, which were to be utilized by them or assets which had an enduring benefit for them. The expenses incurred pertained to projects awarded by the Central Government, State Governments or foreign agencies for the benefit of the villagers and poor people. The assets belonged to the poor and deprived. They were not assets belonging to or own....
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....penditure incurred by the assessee for the purposes of the business or profession. The word "wholly" in the above provision refers to quantum of expenditure and the word "exclusively" refers to the motive, objective and purpose of the expenditure. The expression "used for the purpose of business" requires that the expenditure should be incurred by the assessee in his capacity as a person carrying on business. The test is whether the money spent or liabilities incurred were laid out "wholly and exclusively for the purpose of business" in the sense they were incurred for the purpose of keeping the trade or business going or with the object of furtherance of trade and business interests. Such expenses are to be allowed as a deduction even if they are incidentally for the said objective and purpose. 9. In Ram Bahadur Thakur Ltd. Vs. Commissioner of Income Tax, (2003) 261 ITR 390 (Kerala), interpreting Section 37 of the Act it was observed:- "23. The broad principles that can be deduced from the aforesaid discussion on the scope of S. 37(1) of the Act vis-a-vis the question of law involved in the case can be summarised as follows: (1) In order to constitute an expenditure fa....
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....see to plead and prove before the authorities that the expenses are incurred wholly and exclusively for the purpose of the business of the assessee. (9) When a claim for deduction of an expenditure under S. 37(1) of the Act is made by an assessee the assessing officer is bound to conduct an enquiry as to whether the assessee satisfied all the requirements of the section before either allowing or rejecting the claim. The officer cannot mechanically either allow the deduction or deny the same. We make it clear that these are not exhaustive and the application of these principles may vary from case to case and will depend on the facts and circumstances of each case." 10. In Additional Commissioner of Income Tax, Bhopal Vs. Kuber Singh Bhagwandas (1979) 118 ITR 379 (FB), Full Bench of the Madhya Pradesh High Court had dealt with a factual situation wherein assessee had made donation to Chief Minister's Draught Relief Fund, which was claimed as an expenditure under Section 37 of the Act, being in the nature of expenditure incurred wholly and exclusively for the business of the assessee. Notwithstanding Section 80G of the Act, this judgment holds that the expenditure would be allow....
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.... quoted :- "[A] sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of trade...." 12. Sri Venkata Satyanarayana Rice Mill Contractors Co.(supra) had held that contributions made by the assessee to public welfare fund could be allowed as allowable expenditure under Section 37 of the Act where they were directly connected or related to the business of the assessee or had resulted in benefit to the business. It would not matter whether the said expenditure is in the nature of donation, charity, for public cause or results in public benefit, for this would not be good reason to deny the assessee deduction under section 37 of the Act when the payment is for the purpose of the assessee's business. 13. In the facts of the present case, the object and purpose of the respondent-assessee is to engage and work for social and economic upliftment of the rural poor, construct water reservoirs etc. It is established for this purpose and receives gra....