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2012 (8) TMI 85 - AT - Income TaxWhether compensation paid to the land owners for using their land for extraction of Gypsum; mining being part of the assessee s trade, as revenue expenditure Held that - Nature of loss in the hands of the payee would be of little consequence in determining the nature of the expenditure in the hands of the payer/person incurring the expenditure - expenditure is revenue in nature - in favour of the assessee Disallowance - contribution to a Fund established at the instance of the State Government with the object of providing a safety net for the workers - disallowance by the Assessing Officer on the basis that the same is only an application of income and not a case of diversion of income by overriding title Held that - Fund had been set up solely for the purpose of welfare and benefit of the employees - disallowance deleted - in favour of the assessee Donation versus business expenditure - Contribution to the welfare fund as a precondition for the grant of export permits - business expediency Held that - Most business payments arising only out of conscious business decisions on the part of the Management, whose function and responsibility and, thus, prerogative, it is to decide as to how to conduct the same; the only requirement of law being a clear exhibition of the same being motivated by considerations only of business - assessee s claim as not sustainable
Issues Involved:
1. Nature of compensation paid for land use. 2. Contribution to a fund for workers' safety net. 3. Deduction claim for donations under Section 37(1). Issue-wise Detailed Analysis: 1. Nature of Compensation Paid for Land Use: The Revenue's first ground of appeal concerns whether compensation paid to landowners for using their land for gypsum extraction is a capital or revenue expenditure. The Tribunal referenced its previous decisions in the assessee's own case for AY 2006-07, AY 2003-04, and AY 2004-05, determining that such compensation is revenue expenditure. This is because the compensation is part of the cost of gypsum extraction and does not result in any asset or enduring advantage. The Tribunal upheld the CIT(A)'s order, confirming that the expenditure is revenue in nature, aligning with the assessee's claim. 2. Contribution to a Fund for Workers' Safety Net: The second issue raised by the Revenue involves the disallowance of Rs. 10.00 lacs contributed by the assessee to a fund for workers affected by the restructuring of State Public Sector Enterprises. The AO disallowed this, considering it an application of income rather than a diversion by overriding title. The Tribunal, however, noted that similar contributions were allowed in the assessee's own case for AY 2006-07 and in the case of Rajasthan State Seeds Corporation Ltd. for AY 2006-07. These contributions were deemed for the welfare and benefit of employees, thus qualifying for deduction. The Tribunal confirmed the CIT(A)'s order, deleting the disallowance. 3. Deduction Claim for Donations under Section 37(1): The assessee claimed a deduction under Section 37(1) for Rs. 1.20 lacs, which was not claimed in the original or revised return but through a letter. The AO disallowed this based on the Supreme Court's decision in Goetze (India) Ltd. vs. CIT, which restricts claims not made through the prescribed procedure. The CIT(A) allowed the claim based on decisions in Oglivy & Mather (P.) Ltd. vs. Addl.CIT and CIT vs. Ramco International, which state that appellate authorities can entertain new claims. However, on merits, the CIT(A) disallowed the claim, citing decisions in Voltas Ltd. vs. CIT, Standard Mills Co. Ltd. vs. CIT, and Jaswant Trading Co. vs. CIT, which require expenditure to be wholly and exclusively for business purposes. The Tribunal agreed with the AO, emphasizing that the claim was not validly made per the prescribed procedure. The Tribunal also found the claim unsustainable on merits, noting that the donations were for cultural events with no direct nexus to the assessee's business. The Tribunal referenced the Supreme Court's decision in Sri Venkata Satyanarayna Rice Mill Contractors Co. vs. CIT, which allows deductions for business-related public welfare contributions. However, the Tribunal found no commercial expediency or business nexus in the assessee's contributions. The Tribunal upheld the disallowance, finding the assessee's claim invalid both legally and factually. Conclusion: Both the Revenue's appeal and the assessee's cross-objection were dismissed. The Tribunal confirmed that: 1. Compensation paid for land use is revenue expenditure. 2. Contributions to the workers' safety net fund are deductible. 3. The claim for donations under Section 37(1) was not maintainable, both procedurally and on merits.
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