1975 (7) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in allowing deduction of donations to the Chief Minister's Drought Relief Fund as business expenses u/s 37(1) of the Income-tax Act, 1961.
2. Whether the donations could be considered as voluntary donations eligible for deduction u/s 80G of the Income-tax Act, 1961.

Summary:

Issue 1: Deduction as Business Expenses u/s 37(1)
The Tribunal allowed the deduction of donations to the Chief Minister's Drought Relief Fund as business expenses u/s 37(1) of the Income-tax Act, 1961. The assessees contended that the donations were compulsory for obtaining export permits for gulabi chana. However, the Income-tax Officer and the Appellate Assistant Commissioner found these donations to be voluntary. The High Court emphasized that in a reference u/s 256(1) or 256(2), it is not the High Court's task to reassess the material but to accept the Tribunal's findings as final. The Court concluded that the donations were voluntary and not necessary for the business, thus not allowable as business expenses u/s 37(1).

Issue 2: Voluntary Donations u/s 80G
The Court observed that voluntary donations made by an assessee for purposes of charity could be claimed as deductions u/s 80G of the Income-tax Act, 1961. The essential ingredient for deduction u/s 37(1) is that the expenditure should be necessary for the business. The Court noted that if the donations were compulsory and a condition precedent to the grant of permits, they would be opposed to public policy and void u/s 23 of the Indian Contract Act. The Court held that the donations were voluntary and could be allowed as deductions u/s 80G(2)(a)(v) as donations to charity.

Conclusion:
The High Court concluded that the Tribunal was not justified in allowing the deduction of the amount paid by the assessee as contributions to the Chief Minister's Drought Relief Fund as business expenses u/s 37(1) of the Income-tax Act, 1961. The donations could be allowed as voluntary donations u/s 80G(2)(a)(v) of the Income-tax Act, 1961. The Court directed that there shall be no order as to costs of these references.