1966 (4) TMI 3 - HC - Income Tax

Payment of Rs.56,000 made to the Congress Parliamentary Board for the General Elections was not an admissible expenditure under s. 10(2)(xv) - no any nexus between this contribution to the Congress Parliamentary Board and expenditure incurred for the purpose of the business

Summary

Issues:
Admissibility of expenditure under section 10(2)(xv) of the Income-tax Act for payment made to the Congress Parliamentary Board for General Elections.

Analysis:
The judgment delivered by the High Court of Allahabad addressed the issue of whether the payment of Rs. 56,000 made by an assessee-company to the U.P. Congress Parliamentary Board for General Elections was an admissible expenditure under section 10(2)(xv) of the Income-tax Act. The court noted that the assessee's contention was based on the assertion that it was in the interest of the company to keep the ruling party in power due to the changing economic structure of society. However, the court emphasized that not every expenditure in the interest of a company can be considered as laid out wholly and exclusively for the purpose of the business. The Tribunal had found that there was no threat against the company's property or assets and no risk of nationalization of the business. As a result, the court concluded that there was no direct nexus between the contribution to the Congress Parliamentary Board and the business expenditure, leading to the inability of the assessee to prove that the payment was wholly and exclusively for business purposes.

The court highlighted that the burden of proof lay on the assessee to demonstrate the expenditure's direct relevance to the business, which was not fulfilled in this case. Despite the general assertion made by the assessee regarding the company's interest in supporting the ruling party, the lack of additional facts showing the necessity of the expenditure for promoting or securing the business led to the unfavorable judgment. The court's decision was based on the absence of a clear connection between the contribution and the business purpose, ultimately resulting in the rejection of the assessee's claim for admissibility of the expenditure under the Income-tax Act.

In conclusion, the court answered the question referred against the assessee, ruling that the payment made to the Congress Parliamentary Board was not an admissible expenditure under section 10(2)(xv) of the Income-tax Act. The assessee was directed to pay the costs of the department, and the counsel's fee was fixed at Rs. 200.