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TMI Blog2013 (12) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was admitted on 17.1.2008 on the following substantial questions of law. "Admit on the following substantial question of law. Whether on the facts and under the circumstances of the case, the contributions of Rs. 1 lac and Rs. 10 lacs made by the appellant ( a Govt. Company) under the instructions of the State Government on account of the commercial expediency are allowable as deduction under Section 37(1) of the Income Tax Act from the income of the appellant ?" 3. The assessing authority disallowed the deduction for the reasons that deduction of Rs. 1 lac for library with regard to PCS officer does not fall under business expediency. Before the assessing officer, defence taken by the appellant was that the contributions were made for the benefit of weaker sections, hence they should be allowed as deductions from business income. It is stated before the assessing authority that the appellant is carrying out welfare activity for weaker sections. Relevant portion of the order of assessing authority is re-produced as under:- "Regarding the contribution to Library of P.C.S. coaching centre and the contribution to U.P. Government for construction of Flats at Lucknow amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Section 14-A of the Act. The observation made by the Tribunal while dismissing the appeal is reproduced as under:- "Therefore, this contribution was also not for the benefit of Scheduled Castes, Scheduled Tribes and other backward classes. Therefore, the assessee's plea that this contribution is not hit by provisions of section 14A is accepted. However, for the same reasoning regarding disallowability of Rs. 1 lakh contribution to P.C.S. Library, this contribution of Rs. 10 lakh is also not allowable being given only in pursuance of directions of State Government only without having regard to assessee's business. Merely because the contribution was for construction activity, it cannot be held that it was for business purpose of assessee because the main object of assessee's business has to be kept in mind. The expenditure which is merely connected with the business activities of assessee cannot be allowed unless it was also incidental to assessee's business activities. The contribution even if made under some obligation cannot qualify for deduction unless made wholly and exclusively for the business purposes. The ground is dismissed. In the result, the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board shall not transfer whether by way of sale, gift or mortgage or otherwise dispose of any immovable property of the Company without prior approval in writing of the Government of Uttar Pradesh. Article 126- Without prejudice to the general powers conferred by Article 125 and by or under any other Article or the Provisions of the Act, the Board shall have the following specific powers: (i) To carry out the objects of the Company and exercise the powers contained in clause III of the Memorandum of Association of the Company. (ii) To have the superintendence, control and direction over Managers or Managing Directors, whole-time Director and all other officers of the Company. (iii) To carry on business on the vacation of office by the managing Director or Manager of the Company, if any, (iv) To delegate, subject to the provisions of section 292 of the Act, by a resolution passed at a meeting of the Board to any Committee of the Board and/or Managing Director of the Company. (a) power to borrow moneys otherwise than on debentures; (b) the power to invest the funds of the Company; (c) the power to make loans; (d) the power to carry out the objects of the Company as containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her discharges for moneys payable to the Company and for the claims and demands of the Company; to make contracts and to execute deeds. (ix) To appoint officers, clerks and servants for permanent, temporary or special service as the Board may from time to time think fit and to determine their powers and duties and to fix their salaries and emoluments and to require security in such instances and to such amount as the Board may think fit and to remove or suspend any such officers, clerks and servants : Provided, however, that no post the basic pay of which, either exceed Rs. 2,500 p.m. or the maximum of the scale of which exceeds Rs. 2,500 p.m. shall be created and filled without the prior approval of the governor of Uttar Pradesh, but in case it is found useful to avail the services of retired Government servants of good competence and experience, this limit of Rs. 2,500 may be raised to Rs. 3,000 inclusive of pension :Provided further that appointment of any foreign national shall not be made without the prior approval of the Governor of Uttar Pradesh except the appointment of foreign technical personnel to any post without any ceiling of salary to such personnel and also when s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (xx) To exercise powers conferred on the Company by sections 157 and 158 of the act, with regard to keeping of branch and foreign registers. (xxi) To sell any goods or articles manufactured or produced by the Company or to purchase, obtain or acquire machinery, stores, goods or materials for the purpose of the Company or to sell the same when no longer required for those purposes. (xxii) To determine by resolution from time to time the person or persons by name of office who shall be entitled to do all or any of the acts mentioned in these articles, of the Company; and (xxiii) To accept the surrender of any share by way of compromise of any question as to the holder being properly registered in respect thereof subject to section 100 to 104 of the Companies Act, 1956. Article 129. (a) Subject to the provisions of section 269 of the Act, the Board shall, form time to time with the concurrence of the Governor of Uttar Pradesh appoint any of the Directors to be the Chairman or the same Director as the Chairman-cum-Managing Director of the Company. (b) Subject to the provisions of the Act and the superintendence, control and direction of the Board, the Chairman shall exercise s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or substantial public interest and such other directives as it may consider necessary in regard to the finances and the conduct of business and affairs of the Company. However, any direction issued by the State Government shall be subject to approval of the Board and its business expediency. The power of the Government is to issue direction in the form of policy decision to the assessee. But it does not seem to empower to issue direction to the assessee to make contribution for raising fund with regard to library for PCS officer or for the construction of residential accommodation for the use of officer of the different corporations including the assessee. Under the Rules of business, decision should have been processed by the Board of Director keeping in view the business expediency. It is for the managing director to discharge obligations with regard to business transaction subject to approval of Board under Article 125 readwith 129 and 131. 8. Apart from above, business expediency is a matter which falls within the domain of assessee and not under the Government. Whether expenditure or contribution of fund is necessary to meet out the business requirement or not, is a question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax, West Benga, the question cropped up with regard to payment of commission in terms of agreement as well as the significance of the deduction given in the earlier assessment years and the Supreme Court arrived to the conclusion that the commission paid was extended wholly and exclusively for the purpose of assessee's business Thus, the commission paid was in terms of agreement between the company and selling agent wholly or exclusively for the purpose of assessee's business. In the present case, there is nothing like agreement. 12. Learned counsel for the appellant has relied upon the cases reported in (2006) 280 ITR 519 (Cal) Ravi Marketing P. Ltd. vs. Commissioner of Income Tax, (2004) 266 ITR 170(Mad) C.I.T. vs. Madras Refineries Ltd., (1997) 223 ITR 101 Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. Commissioner of Income Tax, (1987) 166 ITR 836 (Kar) Mysore Kirloskar Ltd. vs. Commissioner of Income Tax, (1996) 219 ITR 203 (Mad) Commissioner of Income Tax vs. Cheran Transport Corporation Ltd., (204) 268 ITR 507 (Mad) Commissioner of Income Tax vs. Kattabomman Transport Corporation Ltd., (1983) 142 ITR 185 Income Tax Appellate Tribunal vs. B. Hill and Co. (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances and provision contained in Section 37 (1) of the Act, the decision with regard to business expenditure must be taken by the assessee itself and that too for the purpose of business or profession in conformity with the law. 15. Under the Companies Act or Income Tax Act, no privilege has been conferred on the government except exemption granted in pursuance to the provision contained therein. So far as running of business by the government companies incorporated under Section 617 of the Act is concerned, it must be done by the Company itself and not by the government. Government may take policy decision but does not seem to have got right to interfere with the routine functioning of the government companies with regard to business expediency. 16. In Srong & Co of Romsey Ltd. vs. Woodifield (1906) 5 TC 215 (HL), the taxpayer, a brewery company, owing an inn, was compelled to pay damages by a court of law to a customer who, while sleeping in the inn, suffered injury caused by the falling of a chimney upon him. It was held by the House of Lords that the damages were paid by the taxpayer in his capacity as a house owner and not as a trader. 17. In (1957) 32 ITR 1 ..... 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