1984 (11) TMI 110 - AT - Income Tax

Issues Involved:
1. Whether the amount of Rs. 21,016 relinquished by the assessee-company qualifies as business expenditure.
2. Whether the assessee-company is entitled to relief under section 80G of the Income-tax Act, 1961.

Detailed Analysis:

1. Business Expenditure Qualification:
Facts and Background:
- An immovable property was acquired in 1946 on behalf of the Indore Mill Owners Association, which included the assessee-company, Hukamchand Mills Ltd.
- The property was purchased in the name of the association's President and Vice-President for Rs. 76,000, with the assessee contributing Rs. 17,899.15.
- In 1968, the association, now known as Madhya Pradesh Textile Mills Association, intended to sell part of the property, and the assessee relinquished its claim on the land.
- In 1970, the assessee passed a resolution to relinquish its share in the property as a contribution to the association for the advancement of the textile industry in Madhya Pradesh.
- The amount of Rs. 21,016 was debited to the profit and loss account as a business expenditure.

Commissioner (Appeals) Decision:
- The Commissioner (Appeals) held that the relinquishment did not require reconveyance since the original deed was in the association's name.
- The contribution was made to promote the textile industry, benefiting the assessee as a founder member of the association.
- The Commissioner relied on the Supreme Court's principles in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, concluding that the contribution had a direct bearing on the interests of the assessee and should be treated as business expenditure.

Arguments and Tribunal's Decision:
- The revenue argued that the expenditure was capital in nature and not incurred wholly and exclusively for business purposes, citing M.S.P. Senthikumara Nadar & Sons v. CIT [1957] 32 ITR 138.
- The assessee argued that the property was always in the association's name, and the resolution in 1970 formalized the relinquishment, making it a business expenditure.
- The Tribunal found that the property was always in the association's name, and the expenditure was incurred in 1970 when the resolution was passed.
- The Tribunal upheld the Commissioner's decision, stating that the expenditure was laid out wholly and exclusively for business purposes and did not create a capital asset for the assessee.

Supporting Case Laws:
- The Tribunal referenced several case laws supporting the assessee's claim, including CIT v. T.V. Sundaram Iyengar & Sons (P.) Ltd. [1974] 95 ITR 428 and CIT v. Excel Industries Ltd. [1980] 122 ITR 995, which dealt with similar issues of contributions made for business purposes.

2. Relief under Section 80G:
Alternative Claim:
- The assessee filed a cross-objection, claiming relief under section 80G if the contribution was not accepted as business expenditure.
- The Tribunal, considering the decisions in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478, CIT v. Traub (India) (P.) Ltd. [1979] 118 ITR 525, and CIT v. Khandelwal Laboratories (P.) Ltd. [1979] 118 ITR 531, held that donations in kind were eligible for relief under section 80G.

Tribunal's Conclusion:
- The Tribunal allowed the assessee's cross-objection, affirming that the claim for relief under section 80G was valid for donations made in kind, applicable for the assessment year in question.

Final Decision:
- The revenue's appeal was dismissed.
- The assessee's cross-objection was allowed, confirming that the contribution qualified as business expenditure and, alternatively, was eligible for relief under section 80G.

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