2016 (12) TMI 349 - AT - Income Tax

Deduction u/s. 37(1) - contribution to the Pune Bench of the Institute of Chartered Accountants of India towards construction of a administrative building of the said branch - Held that - From the record we found that the Pune Branch of the Western India Regional Council (the branch) of the Institute of Chartered Accountants of India (ICAI) had proposed to construct a building for locating its administration office including an auditorium, information technology centre, reading room facilities, pantry, cafeteria and parking facilities for the members and students of the institute.We also found that for the said purpose the Pune Branch had set up Pune Branch Building Fund and, the Institute has received approval under Section 80 G of the Income Tax Act, 1961 ref. O.DIT (E) 2005-06 T. 1041/1001 valid up to 31st March, 2009. Assessee firm has major presence in Pune around half of its compliance clientele and 30-40% of the revenues are generated from Pune. The Hon ble Supreme Court in the case of S A BUILDERS (2006 (12) TMI 82 - SUPREME COURT ) reiterated the proposition that the expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency.In view of the above discussion, we can conclude that if the claim is allowable u/s 37(1) itself there is no case for proceeding to Chapter VIA which applies to all assessees whether or not they are carrying on business or profession. Thus we direct the AO to allow the contribution made by assessee under Section 37(1) of the Act. - Decided in favour of assessee.

Summary

Issues:
- Decline of deduction u/s. 37(1) for contribution towards construction of administrative building.

Analysis:
The appeal was filed against the order of CIT(A) for the assessment year 2009-2010 regarding the decline of deduction u/s. 37(1) for a contribution made by the assessee to the Pune Branch of the Institute of Chartered Accountants of India for the construction of an administrative building. The firm claimed the payment as an expenditure incurred wholly and exclusively for the profession, not as a donation under section 80G. The Assessing Officer considered it a donation, stating that section 80G provisions override section 37(1) and that the purpose was not proven to be exclusively for the firm.

The Pune Branch of the Western India Regional Council of ICAI planned to construct a building for administrative purposes, including various facilities for members and students. The branch raised funds through donations and contributions to partly fund the total cost. The administrative building aimed to provide infrastructure for the benefit of members and students in Pune. The Pune Branch had set up a Building Fund and obtained approval under Section 80G of the Income Tax Act valid up to a certain date. The firm's contribution was deemed to have a direct nexus with the profession, attracting good Articled Clerks and enhancing professional activities.

Judicial pronouncements were considered, such as the Supreme Court's decision in S A BUILDERS emphasizing commercial expediency and the Madras High Court's ruling in CHEMICALS AND PLASTICS INDIA LTD supporting deductions related to business benefits. Other cases like Rupsa Rice Mills, Shree Rajasthan Syntex Ltd, and Hindustan Petroleum Corporation Ltd were cited to support deductions for contributions towards construction projects benefiting the business. The Tribunal concluded that if the claim is allowable under section 37(1), there is no need to proceed to Chapter VIA, applicable to all assesses irrespective of business or profession.

Based on the above analysis and judicial precedents, the Tribunal directed the Assessing Officer to allow the contribution made by the assessee under Section 37(1) of the Act, ultimately allowing the appeal of the assessee.