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2003 (11) TMI 47 - HC - Income TaxAssessee provided funds for establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the benefit of the children of those local residents - Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry such expenditure are allowable
Issues:
Assessment of business expenditure incurred for community welfare activities. Analysis: The judgment of the High Court of Madras in the case of Madras Refineries Limited for the assessment year 1992-93 involved a dispute regarding the allowance of expenditure incurred by the assessee for community welfare activities. The assessee, a public limited company, spent Rs. 15,32,000 on establishing drinking water facilities and aiding a school for the local residents. The Assessing Officer initially disallowed the expenditure, stating it was not related to income generation. On appeal, the Commissioner acknowledged the community welfare aspect but allowed only a portion of the claimed amount. Subsequently, the Tribunal, after verifying the expenditure, concluded that fostering goodwill in the local community benefits business. The Tribunal allowed the entire amount as a deduction, emphasizing the evolving concept of business to include social responsibility and community welfare initiatives. The High Court ruled in favor of the assessee, stating that expenses for community welfare activities are not entirely outside the scope of business concerns, especially for industries impacting the local environment. The judgment highlights the importance of corporate social responsibility in enhancing goodwill and business success, ultimately favoring the deduction of the full expenditure claimed by the assessee.
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