TaxTMI 
TaxTMI 
2021 (9) TMI 13
X X X X Extracts X X X X
X X X X Extracts X X X X
....tituted by the Hon'ble Supreme Court as a percentage (10%) of sale proceeds, is not income of the assessee-appellant as it never reached the appellant at any point of time, and it was diversion of income by overriding title. 2.2. Without prejudice to the Ground No. 2.1 above, the Authorities below failed to appreciate that the expenditure in question has acquired the character of statutory deduction, since it is withheld and retained by the CEC on the directions of the Hon'ble Supreme Court and as such, it is allowable expenditure wholly and exclusively laid out and expended for the purposes of business. 2.3. Without prejudice to the Ground Nos. 2.1 & 2.2 above, the Authorities below failed to appreciate that the expenditure in question is not prohibited by Law, and on the contrary, it is mandated by Law, since it is withheld and retained by the CEC on the directions of the Hon'ble Supreme Court, and as such, Explanation-1 under sub-section (1) of section 37 of the Act has no application. 2.4. Without prejudice to the Grounds in Nos. 2.1, 2.2 & 2.3 above, the Learned Assessing Officer as well as the Learned Commissioner of Income-tax (Appeals)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture in question was not set apart as per section 135 of the Companies Act, 2013 and therefore, the restriction in the said Explanation-2 is not attracted, even if the said Explanation is ultimately held to be retrospective in operation and as applicable to non-corporate assessees also. CONTRIBUTION TO FIMI TOWARDS LEGAL EXPENSES. 4.1. The Authorities below failed to appreciate that payments made to FIMI towards legal expenses amounting to Rs. 20,00,000/- are expended wholly and exclusively for the purpose of business and therefore, allowable as business expenditure under section 37(1) of the Act. 4.2. The Authorities below ought not to have restricted the payment of Rs. 20,00,000/- to FIMI towards legal expenses under section 50G of the Act, failing to appreciate that the entire expenditure is allowable under section 37(1) of the Act. TRAVELLING EXPENSES. 5. The Learned CIT(A) ought to have appreciated that there is no defect in claiming the expenditure on foreign travel as per his own finding and therefore, ordered deletion of the entire addition of Rs. 4,68,259/- consistent with his own finding. 6. The Appellant denies the li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re-amendment assessment year. 2.5. The Learned CIT(A) failed to appreciate that the assessee/appellant is a partnership firm, and not a company, and accordingly the restrictive clause in Explanation-2 of section 37(1) of the Act, relating to expenditure on Corporate Social Responsibility (CSR) was not applicable to the amount withheld and retained by the CEC. 2.6. The Learned CIT(A) ought to have appreciated that the amount in question retained by the CEC was not set apart as per section 135 of the Companies Act, 2013 and therefore, the restriction in the said Explanation-2 is not attracted, even if the said Explanation is ultimately held to be retrospective in operation and as applicable to non-corporate assessees also. CONTRIBUTION TOWARDS FLOOD RELIEF. 3.1. The Authorities below ought to have appreciated that the contribution of Rs. 2,40,00,000/- towards Flood Relief as per the MOU executed with the Government of Karnataka is an eligible expenditure of business u/s. 37 of the Act, since it is expended wholly and exclusively for the purpose of the business. 3.2. The Learned AO and the Learned CIT(A) have failed to appreciate that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Hon'ble Supreme Court, out of sale proceeds, for the purpose of taking various ameliorative and mitigative measures. Ld. AO was of the opinion that, as the said retention of amount is in the nature of appropriation of profit and compensatory payment towards damages caused due to the environment and forest due to contravention of laws, the said payment cannot be said to be incurred wholly and exclusively for the purpose of business within the meaning of the provisions of section 37 of the IT Act. The Ld. AO thus sought for explanation towards the disallowance of the deduction claimed by the assessee. 2.3. In response, the assessee submitted that, "As per the procedure adopted, based on the directions issued by the Hon'ble Supreme Court from time to time inclusive of the directions given while disposing the Writ Petition bearing No. CIVIL 562 of 2009 dated 18.04.2013, from sale proceeds a percentage of 10% is to be deducted from the e-auction sale proceeds in respect of 'A' category of Mines and 15% in respect of 'B' category and to spend the said amount under "Special Vehicle Purpose". As stated in the directions, this deduction is for the pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee was in default could not constitute expenditure laid out for the purpose of assessee's business [Indian Aluminium Co. Ltd. Vs. CIT (SC) 79 ITR 514]. In the case of Indian Aluminium Co. Ltd. Vs. CIT (SC) 79 ITR 514 it was held by the Apex Court that - A payment made under a statutory obligation because the assessee was in default could not constitute expenditure laid out for the purpose of assessee's business. It is not out of place to emphasise once again the judgment in the case of Maddi Venkataraman & Co. (P) Ltd. vs. CIT (1998) 229 ITR 534 (SC) wherein the Hon'ble Supreme Court has held that - Even if the entire business of the assessee is illegal and income is sought to be taxed by the assessing Officer, the expenditure in the illegal activities is not deductible after the insertion of Explanation to Section 37(1) by the Finance Act, 1998. It has been consistently held by the Courts that fines or penalties payable for Violation of law of the land cannot be permitted as deduction under the Income-tax Act. That will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of NMDC Ltd. Vs. ACIT reported in 175 ITD 332. Our attention was drawn to paras 9 to 11 of the said order. The Ld. AR pointed out that in Para 10 of order, Hon'ble Hyderabad Tribunal noted that assessee therein was classified as 'A' Category mine and in para 11, it was held by the Tribunal that 10% of sale proceeds being SPV in 'A' category mine was to be contributed without which, assessee therein could not have resumed its activities and therefore, is a 'business expenditure' and is allowable u/s. 37(1) of Income tax Act. He submitted that the only difference is in percentage of SPV contribution, which is 15% of sale proceeds in 'B' Category as against 10% of sale proceeds in 'A' Category. Ld. AR submitted that it does not change the nature/character of expenditure and therefore, in the present case, decision of Hon'ble Hyderabad Tribunal is squarely applicable. 5.3. The Ld. AR submitted that the issue of allowability of 10/15% of sale proceeds remitted to SPV has been considered at length by the Co-ordinate Bench of this Tribunal in following cases: (i). M/s. Veerabhadrappa Sangappa & Co., in ITA No. 1054/Bang/2019 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as its income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to pay out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ........... Based on above discussions and analysis, we are of opinion that contribution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration." 7. This issue again came up for consideration before this Tribunal in the case of Veerabhadrappa Sangappa & Co. in ITA No. 1270 & 1271/Bang/2019 for A.Y. 2013-14, wherein this Tribunal by order dated 4.11.2020 followed the above view by observing as under:- "7.10.1. Ld. Counsel again raised 3 prepositions before us in respect of the contribution made to SPV account from the sale proceeds. * Primarily he contended that there is diversion of income by overriding title to SPV account, and therefore such amount is not liable to tax in the hands of assessee. * Alternatively he submitted that the said sum may be treated as loss under section 28 while computing profit and loss under the head income from business and profession. Or * He submitted that it may be treated as an expenditure incurred by assessee for purposes of business. 7.10.2. On the contrary, Ld. CIT DR submitted that it is an application of income and therefore h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable." Emphasis Supplied 7.10.5. Applying, thin line of difference interpreted by Hon'ble Supreme Court to present facts, we are of the opinion that, contribution to SPV account, cannot be considered to be diversion of income. This is because, we have already held while deciding ground 2.1 and 2.2 hereinabove, that entire sale proceeds accrued to assessee, and it is only due to direction of Hon'ble Supreme Court that such amount was contributed to SPV account, for which assessee was to authorise CEC/MC in relevant paragraph 11(III) refer to and relied by Ld. CIT DR. 7.10.6. In the present facts of the case, we note that 10%/15% of sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act, the A.O. observed that the assessee-company is carrying out mining activity in India and particularly in Karnataka and that the Hon'ble Supreme Court of India took note of the large scale illegal mining activity carried on by various companies in Karnataka at the cost or detriment of environment and delivered their judgment on 18.04.2013 levying appropriate charges on the leaseholders. A.O. also observed that the Hon'ble Supreme Court, based on the extent of illegal mining, classified the mining leases into three categories viz., Category "A", "B" and "C" and that the assessee is falling in Category-B in respect of Donimali Complex and that in their order, the Apex Court observed that before consideration of any resumption of mining operations by Category-B leaseholders, each of the lease holder must pay compensation for the areas under illegal mining pits outside the sanctioned area at the rate of Rs. 5 Crs per hectare and for illegal overburden for at the rate of Rs. 1 Cr per hectare. Further, A.O. observed that the said direction of the Apex Court was subject to the final determination of the notional loss caused by the illegal mining and illegal use of the land; an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enalty. Though the nomenclature given is "penalty" it is not for infraction or violation of any law to hold it to be punitive in nature, as presumed by the Assessing Officer. Learned Counsel for the Assessee placed reliance on various case law, particularly the decision of the Coordinate Bench of the ITAT, Kolkata in the case of Essel Mining & Industries Ltd. vs. Addl. CIT (ITA No. 352/Kol/2011 and others, dated 20.05.2016); ACIT vs. Freegade & Co. Ltd. (ITA No. 934/Kol/2009, dated 05.08.2011) and also the decision of the Hon'ble Calcutta High Court in the case of ShyamSel Ltd. vs. DCIT (72 Taxmann.com 105) (Cal.). On going through the said decisions, we find that the Hon'ble Calcutta High Court has considered the case of an assessee who failed to install Pollution Control Device within factory premise within prescribed time and that the assessee had to pay Rs. 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of 'polluter pays' and the A.O. had treated it as penalty and did not allow the same as business expenditure. The Hon'ble High Court had taken note of the fact that the assessee&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ursed to the respective lessees. In respect of the mining leases falling in "Category-B", after deducting the penalty/compensation, the estimated cost of the implementation of the R & R Plan, and 10% of the sale proceeds to be retained for being transferred to the SPV, the balance amount, if any may be reimbursed to the respective lessees;" The fact that the compensation is proportionate to area of illegal mining outside the leased area and that the assessee has paid the proportionate compensation for mining in the areas outside the sanctioned area allotted to it and that 10% of sum is to be transferred to SPV and the balance 10% is to be reimbursed to the respective lessees, according to us, proves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allowable u/s. 37(1) of the Act. Thus, Grounds No. 2 and 3 raised by the assessee are allowed." 7.10.9. We also notice that the co-ordinate Bangalore bench of Tribunal has also considered ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rdingly, entire amount adjusted towards SPV was disallowed by Ld. AO. Ld. AO was of opinion that entire sale proceeds as per E auction bid Sheets/invoices were to be assessed as trading receipts. The amount retained by CEC/monitoring committee as per directions of Hon'ble Supreme Court, on behalf of assessee for SPV purposes, was on account of damages and loss caused to environment due to contravention of law, and therefore, cannot be allowed as deduction out of sale proceeds, even after accrual of such liability. Ld. AO was of opinion that, even in Category 'A' mines, there was marginal illegality found by CEC, because of which 10% of contribution was attributed out of sale proceeds to the SPV. 7.8.12. On careful reading of decision of Hon'ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R & R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Category 'B'. We refer to and rely on observations by Hon'ble Supreme Court in case of CIT vs. Sitaldas Tirathdas reported in (1961) 41 ITR 367. Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll as otherwise. All the payments form part of R & R plan for recouping and rehabilitating the environment. Certain payments are onetime payment and some others are recurring depending upon the sale of iron ore sold in the name of each licensee or depending on the need for rehabilitation. 7.8.15. In our view, contributing 15% to SPV account on account of Category 'B', would be application of income, and therefore, should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R & R Plans in respective sanctioned lease areas held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R & R plan, subject to satisfaction of CEC and approval by Hon'ble Suprem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ures as per the "Comprehensive Environment Plans for Mining Impact Zone (CPEMIZ) around mining leases in Bellary, Chitradurga and Tumkur. By order dated 28-09-2012, the Monitoring Committee was to make available the payments received by it under different heads of receivables to the SPV" 7.10.12. It is noticed that amounts collected from assessee are directed to be given to the SPV, which will in turn take various types of ameliorative and mitigative steps in the interest not only of the environment and ecology but the mining industry as a whole so as to enable the industry to run in a more organized, planned and disciplined manner. Under these set of facts, it cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd. (supra) and Co-ordinate bench of Bangalore Tribunal in Ramgad Minerals (supra) came to the same conclusion. We note that in NMDC case (supra), Hon'ble Hyderabad Tribunal followed decision of Hon'ble Kolkatta High Court in the case of ShyamSel Ltd. (supra) and State Pollution Control Board vs. Swastik Ispat (P) Ltd. (supra), wherein identical types of payments made to remedy the river....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd not to others. Therefore, the Appellant being an individual the restriction imposed under Explanation 2 to section 37 is not applicable in the instant case. Therefore, it is submitted that the impugned expenses incurred for the purpose of business are an admissible expenditure under Section 37. 8. On the other hand, the ld. DR submitted that the finance minister has announced some tax incentives in the Budget to encourage companies to participate in 'Swachh Bharat Abhiyan' and 'Clean Ganga campaign'. It is announced that the donations (other than the corporate social responsibility or CSR contributions) made to 'Swachh Bharat Kosh' (both by resident and non-resident) and Clean Ganga Fund (by resident) shall be eligible for 100 per cent deduction under section 80G of the Income Tax Act. As per the CSR provisions, Companies have been mandated to spend 2 per cent of their three-year average net profit on CSR under the Companies Act, 2013. The companies are also required to disclose the CSR activities and the amount spent on it in their annual reports. But the Income Tax Act does not provide for any incentives for such expenditure either for companie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the purpose of carrying on business or profession. As CSR expenditure being application of income is not incurred for the purpose of carrying on of business, such expenditure cannot be allowed under the provisions of section 37 of the Act. Therefore, in order to provide certainty on this issue, the said section 37 has been amended to clarify that for the purpose of sub-section (1) of section 37 any expenditure by an assessee on the activities relating to CSR referred to in section 135 of the Companies At, 2013 should not be allowed as deduction under sub-section 37. However, CSR expenditure which is of nature described sections 30 to 36 of the Act, shall be allowed as deduction under this section, subject to fulfillment of conditions, if any, specified therein. But this amendment takes effect from 1.4.2015 and will be applicable in relation to A.Y. 2015-16 and subsequent years. 12. Now the issue before us is whether the department is justified in invoking this Explanation 2 to section 37 to disallow above expenditure incurred by the assessee. Explanation (2) to section 37 reads as follows:- "Explanation 2. - For the removal of doubts, it is hereby declared that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esponsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year]. [Provided also th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.] 14. Schedule VII to the Companies Act, 2013 is extracted hereunder:- "SCHEDULE VII (See Section 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:- [(i) Eradicating hunger, poverty and malnutrition, [''promoting health care including preventive health care''] and sanitation [including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. (ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects. (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).] (x) rural development projects] [(xi) slum area development. Explanation.-For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.] [(xii) disaster management, including relief, rehabilitation and reconstruction activities.]" 15. By going through the provisions of Explanation 2 to section 37, it is evident that the said Explanation refers to CSR expenditure as referred in section 135 of the Companies Act, 2013. Thus said restriction is applicable only to the companies, not others. 16. The ld. DR submitted that Explanation to s. 37 is applicable to assesses including individual assesses like the present assessee. We are not in agreement with the above contention of the ld. DR. While interpreting the word in the section, particularly in the Explanation 2 to s. 37, which are enacted under beneficial legislation, the basic principle that has to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contribution/donation to educational institutions, trust, local bodies?" 18. The Hon'ble Gujarat High Court held as under:- "8.10 We have also noted that the amendment in the scheme of section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the decision referred to herein above, we allow grounds 2.1 to 2.6 raised by assessee for asst. year 2012-13. The same view is applied for grounds 2.1 to 2.6 mutatis mutandis for asst. year 2013-14 and 2014-15 respectively. Ground No. 3.1 to 3.5 10. During the course of assessment proceedings, it was submitted that sum of Rs. 2.4 crores was contributed towards Flood Relief Works in pursuant to MOU dated 2/7/2010 entered with local Dy. Commissioner for asst. year 2012-13. He submitted that, the amount was spent for social cause and that to at the instance of Govt. of Karnataka. The Ld. AO after considering various submissions by assessee made addition of such amount by holding that assessee did not obtain exemption certificate u/s. 80G of the Act. 10.1. Aggrieved by the order of AO, the assessee preferred an appeal before the Ld. CIT(A). 10.2. The Ld. CIT(A) on verifying the asst. order and submissions filed by assessee, observed that, as per the MOU entered by assessee with Govt. of Karnataka the donations were given to Chief Minister's Relief Fund and was eligible for exemption u/s. 80G of the Act. He observed that, the Ld. AO denied the claim of assessee as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n a joint account in the name of the Donor and designated officer who together shall spend it on the specified resettlement work." 10.9. The only reason for not granting relief u/s. 80G is that assessee did not obtain the exemption certificate under the relevant provisions of the Act. It is not the case of the Revenue that said expenditure has not been incurred for the purpose as entered into Govt. of Karnataka. The above reproduced clause clearly states that assessee is eligible for exemption u/s. 80G of the Act. 10.10. We note that authorities below even after admitting these facts have not granted relief to the assessee as per the provisions of sec. 80G of the Act. We thus remand this issue to the Ld. AO for computing the deduction eligible to assessee under 80G of the Act for the donations given to the Chief Minister's Relief Fund (calamity). Accordingly the grounds raised by assessee for year under consideration stands allowed for statistical purposes for all years under consideration. Ground No. 4.1 to 4.2: 11. This issue is only relevant to asst. year 2012-13. The assessee during the year made payment of Rs. 10 lakhs and 20 lakhs towards membership fee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing allowed deduction of its contribution to 'FIMI' as revenue expenditure, was considered and allowed by the ITAT - Delhi Bench in the case of Rio Tinto India Pvt. Ltd., Vs. ACIT, wherein its order in ITA No. 363/Del/2012 dated 22.06.2012, at paras 13 to 17 thereof, it was held as under:- "13. Ground No. 4 in the appeal relates to disallowance of an amount of Rs. 50 lacs on account of contribution towards Federation of Indian Mining Industries Building Fund. To a query by the AO during the course of assessment proceedings, the assessee replied that Federation of Indian Mining Industries was engaged in liaisoning with various Government bodies on mining related issues and since it provides support to mining industries and the assessee is rendering services to the mining industries, the expenditure was wholly and exclusively incurred for the purpose of business. However, the AO did not accept the submissions of the assessee on the ground that the assessee failed to establish that expenditure was incurred wholly and exclusively for the purpose of business. Inter alia, the AO relied upon decision in CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC) and distingu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at what is decisive is the nature of business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. In Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT, 223 ITR 101 (SC), Hon'ble Apex Court held that the correct test is that of commercial expediency. In Chemicals & Plastics India Ltd. (supra), Hon'ble Madras High Court while adjudicating as to whether or not the amount of Rs. 1.5 lakhs paid towards the construction of building of the Madras Chamber of Commerce was allowable as business expenditure, held that since the contribution made by the company is for the Chamber of Commerce, whose activities are closely linked with the welfare of the corporate entities. who are members therein and whose interest are taken care of by the Chamber of Commerce. irrespective of whether the expense incurred is compulsory or otherwise., it satisfies the commercial expediency test. In CIT vs. T.V. Sundaram lyengar And Sons Pvt. Limited., 186 ITR 276 (SC), Hon'ble Apex Court upheld the findings of the ITAT that the amoun....