TaxTMI 
TaxTMI 
2004 (8) TMI 322
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....0 point programme by calling the said expenditure as 'donation'". 4. During the course of assessment proceedings, the AO noticed that the assessee has claimed a deduction of Rs. 10,55,648, being expenditure incurred towards implementation of 20 point programmes, which are claimed as expenditure incidental to the business activities of the assessee-company. This deduction was claimed under s. 37(1) of the Act. The AO was, however, of the view that any expenditure in the nature of donation is required to be added back to the profits as a disallowable item, and that the IT Act does not make any specific deviation in respect of amounts spent on 20 point programme. The AO also observed that from the details available on record, it is not established as to how an item of donation, even if it is made in accordance with the 20 point programme, can be considered an allowable business expenditure under s. 37(1) of the Act. It was in this backdrop that the AO disallowed the said sum of Rs. 10,55,648. Aggrieved, assessee carried the matter in appeal before the CIT(A). The appellant submitted as follows: "The appellants submit that the respondent erred in making the above di....
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....oleum directive and since the expenditure has been laid down wholly and exclusively in the furtherance of the business objectives and obligations and are revenue in nature, the amounts are fully deductible under s. 37(1) of the IT Act, 1961." 5. The CIT(A) was, however, also not impressed by the assessee's contentions. It was observed by the CIT(A) that the expenditure so incurred did not have any direct connection with the business of the assessee, and that the beneficiaries of the expenditure were not employees of the assessee-company. It was also observed that the assessee did not have any statutory obligation to incur the said expenditure and that the expenditure was prompted by altruistic motives. The CIT(A) finally held that "the expenditure, therefore, has to be treated as an application of income, and not as an expenditure incurred for earning the said income". The CIT(A) thus upheld, and in fact fortified, the disallowance made by the AO. Aggrieved by the order of the CIT(A), the assessee is in second appeal before us. 6. We have heard Shri Pardiwala, learned counsel for the assessee, and Shri Kumar, learned senior Departmental Representative. We have also peruse....
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....regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under s. 37(1) of the Act when such payment had been made for the purpose of assessee's business." 8. In the case of CIT vs. Madras Refineries Ltd. (2004) 266 ITR 170 (Mad), Hon'ble Supreme Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows: "The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atm....
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....om the judgment of House of Lords in the case of Atherton vs. British Insulated & Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL), referred to with approval by the Hon'ble Supreme Court in the case of CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), which reads as follows: "It was made clear in the above cited cases of Usher's Wilshire Brewery vs. Bruce and Smith vs. Incorporated Council of Law Reporting 1914 (6) Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct an immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate carrying on of the business, may yet be expended wholly and exclusively for the purpose of the trade;..." It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively'. Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these factors in mind, as also entirety of the case, we are not inclined, to sustain the disallowance....