1992 (1) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee on distribution of presents to its shareholders on the occasion of its silver jubilee is an allowable business expenditure u/s 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Allowability of Expenditure u/s 37(1) of the Income-tax Act, 1961
The primary issue was whether the expenditure of Rs. 2,29,386 incurred by the assessee on distribution of presents to its shareholders during its silver jubilee celebration is an allowable business expenditure u/s 37(1) of the Income-tax Act, 1961. The Income-tax Officer initially allowed the expenditure, but the Commissioner of Income-tax, u/s 263, considered it erroneous and prejudicial to the interests of the Revenue, directing its disallowance. The Tribunal upheld the Commissioner's view.

The High Court examined the scope of section 37, which allows any expenditure laid out wholly and exclusively for the purposes of the business, provided it is not capital or personal expenditure. The court referred to several precedents to determine the nature of the expenditure:

1. CIT v. S. L. M. Maneklal Industries Ltd. [1977] 107 ITR 133: The court held that expenditure incurred for establishing a good image and maintaining smooth relations with foreign collaborators was allowable as business expenditure.
2. CIT v. Tata Sons Pvt. Ltd. [1978] 111 ITR 290: The Bombay High Court allowed expenditure incurred during golden jubilee celebrations as it was wholly and exclusively for business interests.
3. Amarjothi Pictures v. CIT [1968] 69 ITR 755: The Madras High Court allowed expenditure on silver jubilee celebrations as it was for business publicity.
4. Andhra Sugars Ltd. v. CIT [1988] 171 ITR 209: The Andhra Pradesh High Court allowed expenditure on mementoes given to shareholders on the company's silver jubilee.

The court concluded that the expenditure in question was incurred to maintain goodwill among members and ensure future business, thus falling within the scope of section 37. The expenditure was neither capital nor personal and was wholly and exclusively for business purposes.

Precedents and Legal Reasoning:
The court relied on various decisions, including those of the Supreme Court, to establish that expenditures aimed at preserving and augmenting business prospects are allowable. The court emphasized that the society, being a separate legal entity, incurred the expenditure as a prudent business decision.

Final Judgment:
The court affirmed that the expenditure incurred by the assessee on distribution of presents to its shareholders on the occasion of its silver jubilee is an allowable business expenditure u/s 37(1) of the Income-tax Act, 1961. The decision of the Division Bench in CIT v. Dascroi Taluka Co-operative Purchase and Sales Union Ltd. [1980] 126 ITR 413 was upheld as good law. The question referred was answered in the affirmative, in favor of the assessee and against the Revenue.