1973 (11) TMI 7 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the contributions by the assessee to the political parties through the Punjab Motor Union, Chandigarh, were allowable under section 37? Question answered in the affirmative i.e., in favour of the assessee and against the revenue

Summary

Issues:
- Allowability of contributions to political parties as deductions under section 37 of the Income Tax Act.

Analysis:
The case involved the assessment years 1969-70 and 1970-71, where the question was whether contributions made by the assessee to political parties through a union were allowable deductions under section 37 of the Income Tax Act. The transport company assessee had contributed funds to the Punjab Motor Union, which then donated the money to political parties to prevent nationalization of the transport business. The assessee claimed the contribution as a revenue expenditure, but the claim was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal. The Tribunal emphasized the need for the assessee to establish a nexus between the contributions and the benefit received by the business. Citing precedents, the Tribunal highlighted the requirement for a direct and intimate connection between the expenditure and the business under section 10(2)(xv) for it to be allowable as a deduction.

The assessee then approached the High Court seeking a reference of the legal question for opinion. The High Court analyzed the Tribunal's decision and observed that while the expenditure details were not provided, there was a clear connection between the contribution and the business benefit received. The High Court referred to a similar case where expenditure on propaganda was considered to be laid out wholly and exclusively for the business. The Court concluded that the contribution was incurred to save the business from annihilation, especially considering the extension of route permits granted to the assessee. The Court rejected the revenue's contention that the expenditure purpose was not known, emphasizing that the contribution had resulted in the preservation of the business.

In light of the analysis, the High Court answered the legal question in the affirmative, ruling in favor of the assessee and against the revenue. The Court found that the contribution was directly linked to saving the business and, therefore, qualified as an allowable deduction under section 37 of the Income Tax Act.