2020 (11) TMI 318 - HC - Income Tax

Allowability of the expenditure applying the test of the commercial expediency - expenditure incurred towards community welfare? - HELD THAT - This issue was dealt by us in the Revenue's appeal for AY 2007-08 2019 (3) TMI 1826 - ITAT CHENNAI wherein we remitted this issue to the file of AO for fresh adjudication on the touch stone of commercial expediency. Similarly, this issue for the year under consideration also, we remit this issue to the file of AO for fresh adjudication on the similar directions. Expenses incurred by contributing to Chennai Open Tennis Tournament - According to the assessee they are entitled to claim it as reduction because it amount to commercial expediency as the assessee would get visibility by contributing towards the programme - HELD THAT - Letter issued by the Government of Tamil Nadu has been held to be only intimation/invitation and that cannot be the sole reason for the appellant to claim the same as an expenditure under Section 37 - As relying on MALAYALAM PLANTATIONS LIMITED 1964 (4) TMI 9 - SUPREME COURT Revenue may realise the amounts from the business assets is a consequence of the default of the assessee in not discharging his statutory obligation, but it does not make the expenditure any the more expenditure incurred in the conduct of the business. It is manifest that the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. - Decided against assessee.

Summary

Issues Involved:
1. Social and Community Welfare Expenses
2. Expenses incurred for conducting Chennai Open Tennis Tournament

Analysis:

Social and Community Welfare Expenses:
The appeal under Section 260 A of the Income Tax Act, 1961 challenges the order of the Income Tax Appellate Tribunal regarding the allowability of social and community welfare expenses for the assessment year 2009-10. The Tribunal remitted the issue to the assessing officer to determine the commercial expediency of the expenditure, disregarding the findings of the CIT(Appeals). The appellant argued that the expenses were incurred to secure public support and promote goodwill, thus being commercially expedient. However, the Tribunal's decision to remit the issue was upheld as it was based on the correct factual position. The Tribunal rightly concluded that no substantial questions of law arose concerning community welfare expenses.

Expenses incurred for conducting Chennai Open Tennis Tournament:
The second set of substantial questions of law pertained to expenses incurred by the appellant for sponsoring the Chennai Open Tennis Tournament. The appellant claimed the amount as a deduction citing commercial expediency and a directive from the Government of Tamil Nadu. However, the Tribunal disallowed the deduction, stating that the Government's invitation did not constitute a mandatory direction. The Tribunal emphasized the lack of nexus between the contribution to the tournament and the benefit received by the appellant's business. The appellant contended that the expenditure was permitted based on the Government's directive and included advertising benefits. The respondent argued against the deduction, citing the Supreme Court's ruling in Commissioner of Income Tax vs. Malayalam Plantations Ltd. The Tribunal's decision to disallow the deduction was upheld as it correctly analyzed the factual position and found no substantial questions of law for consideration. Therefore, the appeal was dismissed with no costs.

In conclusion, the High Court of Madras upheld the Tribunal's decisions regarding both social and community welfare expenses and expenses incurred for conducting the Chennai Open Tennis Tournament, finding no substantial questions of law to be addressed.