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TMI Blog2007 (8) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... iated the facts properly. The amount of Rs. 2,00,000 was claimed as business expenditure under section 37(1) of the Act. Under no circumstances this expenditure can be treated as capital or personal expenditure. 1.4 The disallowance is uncalled for and the same may kindly be deleted." 5. The assessee before ld. Commissioner of Income-tax (Appeals) contested the disallowance of Rs. 2,00,000 which was claimed to be deductible under section 37(1) of the Act as the impugned sum was donated by the assessee to a public trust registered under section 12A of the Act and the amount was set side by the assessee who is Senior Advocate for spending on buying books for library at High Court of MP. It is stated the amount being neither capital nor personal in nature was deductible as business expenditure. 5.1 The facts of the case as per the assessment order are that the assessee is an advocate who claimed deduction of Rs. 2,00,000 given to MP High Court Bar Association for construction of court library building. However, as the claim for deduction was not supported by relevant details, the Assessing Officer observed that the assessee has failed to prove that it was incurred wholly and exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must be incurred with a view to bring profit or monetary advantage and to promote assessee's business interest. It should not be merely for altruistic consideration or in order to win public applause at the cost of the exchequer. In the present case, the purpose is stated to generate goodwill of junior advocates. It is not understandable how such goodwill can be considered to be beneficial to the profession of the appellant considering the fact that he has claimed to be a senior lawyer in his own right. The Hon'ble Supreme Court in the case of CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601 has observed that if the expense is incurred for fostering the business of another only or is made by way of distribution of profit or is wholly gratuitous or for some improper or oblique purposes outside of business, then the expense is not deductible. A donation made to a charitable trust may make an assessee entitled relief under section 80G of the Act, subject to fulfilment of requirements of the said section but he cannot get deduction under section 37(1) without proving any direct nexus or the business expediency as onus in this respect lies on him. The donation in my opinion the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the donation received from the assessee. Ld. counsel for assessee submitted that the same documents may be admitted to justify the claim of the assessee and to show the proper utilization of the amount donated by the assessee. Ld. counsel for assessee reiterated the submissions made before authorities below and submitted that assessee has given donation to the above trust with a specific direction that it should form corpus which would be invested in a manner so that the interest thereon could be utilized for purchase of books and magazines and to provide other library facilities to the advocates practising in the court. Ld. counsel for assessee referred to PB 122 which is balance sheet of the trust to show Rs. 2,00,000 is added to the corpus of the trust ending 31-3-1999. He has also referred to PB 125 which is a certificate from the trust certifying therein that the assessee has given donation of Rs. 2,00,000 to the above trust through two cheques of Rs. 1 lakh each. Ld. counsel for assessee referred to PB 5 which is unsigned letter of the assessee to the President, MP High Court Bar Association, Indore in which it was written that Rs. 2 lakh would be available to him as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in order to get 100 per cent deduction has tried to change the colour of the transaction which is not permitted under the law. Ld. DR submitted that additional evidences are filed for the first time before the Tribunal and no justification is given for not producing the same before the authorities below. 9. We have considered rival submissions and material on record. The assessee in the application for admission of addl. evidences prayed that the same may be admitted to show the proper utilization of the amount donated by him. These are balance sheets and income and expenditure account of the assessee and the trust and the certificates of the trust. Since these certificates of the trust and others are related to the matter in issue, therefore, in our opinion the same shall have to be admitted for substantial cause and to enable the Tribunal to pass appropriate order in the matter. We, accordingly, admit these additional evidences and take into consideration same for the purpose of disposal of the appeal. The revenue is supplied copies of the same and have also been given opportunity to address the arguments on the same. to. The assessee claimed before the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of expenditure or personal expenses of assessee) laid out or expended wholly and exclusively for the purpose of business and profession shall be allowed in computing the income chargeable under the head 'Profit and gains of business and profession'. Assessee has not brought any evidence or material to prove that what purpose of the business and profession was served by giving donation to the' trust. It is also not clarified as to how the donation was wholly and exclusively related to the profession of the assessee. Assessee has failed to prove any direct nexus between the donation and the profession carried on by him. It, therefore, appears that the assessee made donations for personal and gratuitous purposes. The ld. CIT(A) has also correctly recorded finding of fact that there was a contradiction in the stand of the assessee before the authorities below. 11. Ld. counsel for assessee relied upon following decisions in which the grant of permit/license on payment of the donation was held to be having direct nexus with the business of the assessee and for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All ER 413 : [1954] 26 ITR 195 (HL); CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601 (SC): TC16R.507, Usher's Wiltshire Brewery Ltd. v. Bruce [1915] AC 433 (HL) and Ambala Bus Syndicate (P) Ltd. v. CIT [1974] 95 ITR 383 (P H) : TC16R.425 followed; Haji Aziz Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC) : TC16R.514 distinguished; Addl. CIT v. Badrinarayan Shrinarayan Akodiya [1975] 101 ITR 817 (MP) : TC 16R.401 overruled. Conclusion Donation to Chief Minister's Drought Relief Fund having a direct nexus with the object of obtaining permits for export of foodgrain by foodgrain merchants, was allowable business expenditure." 11.2 Hon'ble Supreme Court of India in the case of Sri Venkata Satyanarayna Rice Mill Contractors Co. held as- "What is to be seen is not whether it was compulsory for the assessee to make the payment or not but the correct test is that of commercial expediency. As long as the payment which is made is for the purposes of the business, and the payment made is not by way of penalty for infraction of any law, the same would be allowable as a deduction. In the present case the contribution which was made by the assessee could under no circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict Welfare Fund maintained by the District Collector without which contribution he would not get permit, the payment is directly connected with assessee's carrying on of business, is not against public policy, and is allowable under section 37(1)." 11.3 Hon'ble High Court of Karnataka in the case of Mysore Kirloskar Ltd. held as: "The basic requirement for invoking sections 37(1) and 80G are quite different, but nonetheless, the two sections are not mutually exclusive. If the contribution by an assessee is in the form of donations of the category specified under section 80G, but if it could also be termed as an expenditure of the category failing under section 37(1), then the right of the assessee to claim the whole of it as allowance under section 37(1) cannot be denied. But such money must be "laid out or expended wholly and exclusively for the purpose of business". The word "wholly" refers to the quantum of expenditure and the word "exclusively" refers to the motive, object or purpose of the expenditure. There is yet one more thing to be remembered while applying section 37(1). The expenditure claimed therein need not be "necessarily" spent by the assessee. It must be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and exclusively for the purpose of such business and if the fact-finding Tribunal comes to the conclusion on evidence which would justify that conclusion it being for them to find the evidence and to give the finding then it will become an admissible deduction. The decision of such question is for the Tribunal and the decision must be sustained if there is evidence upon which the Tribunal could have arrived at such a conclusion. The Tribunal has found in favour of the managing agent that the amount was expended for reasons of commercial expediency, it was not given as a bounty but to strengthen the managed-company and if the financial position of the managed-company became strong the managing agent would benefit thereby. That finding is one of fact. Conclusion Question whether the amount waived by the assessee for the reason of commercial expediency is an allowable business expenditure is a question of fact." 11.5 The above decisions are rendered in their own facts in which assessee was able to prove that donation had a direct nexus with the business of the assessee and even though expenditure was incurred was supported by commercial expediency. Therefore, these decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Shri Venkat Satyanarayan Rice Mill v. CIT [1997] 137 CTR (SC) 267 : [1997] 223 ITR 101 (SC) distinguished." 13. For the purpose of claiming deduction under section 37 of the Income-tax Act, the assessee shall have to prove that expenditure was wholly and exclusively incurred for the purpose of business and profession. The assessee in this case has not brought any evidence or material on record to prove as to what business purpose is served in the matter by making the donation. No commercial expediency is also established by assessee. Since no direct nexus has been established between the expenditure by way of donation and the profession of the assessee, such expenditure cannot be allowed deduction under section 37 of the Income-tax Act. As noted above, it was a simple donation made by assessee to the trust for which assessee would have been allowed deduction at the rate of 50 per cent if the conditions of section 80G are satisfied. It, therefore, appears that it is a case of ill advice to the assessee to claim deduction under section 37(1) of the Income-tax Act instead of section 80G of the Income-tax Act. The decisions cited by ld. DR is, therefore, directly applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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