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TMI Blog2014 (11) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... rsing the findings recorded by CIT(A) was legally correct in negating the claim of the appellant under section 80-G of the Act in respect of donation made by it towards Prime Ministers Relief Fund for Gujarat Earth Quake Relief Fund at the call given by Government authorities? iii) Whether on the facts and in the circumstances of the case, the appellate Tribunal was justified in law in holding that the sum of Rs. 24,89,000/- being the value of goods sent to the Prime Ministers Relief Fund for Gujarat Earth quake relief was eligible for deduction under section 37 of the Income Tax Act, 1961? iv) Whether on a correct interpretation of the provisions of Section 80IA of the Income Tax Act, 1961, was the Tribunal legally correct in upholding the order passed by the Assessing officer whereby the latter had held that the receipt from license income to the tune of Rs. 8,33,885/- and export incentives on DEPB of Rs. 1,08,62,906/- could not be treated to be the profits and gains derived by the assessee from its business for the purposes of computing the relief of deduction under the said provision? 2. A few facts relevant for the decision of the controversy involved as narrated in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible. In the present case, the assessee had paid the compounding fee as compensation for condoning deviations from original sanctioned plan. In substance, the payment was in the nature of the amount paid on account of infraction of law as there was violation in the building plan of the assessee. 7. Further, Finance (No.2) Act, 1998 had incorporated Explanation to Section 37(1) of the Act which was made retrospectively with effect from 1.4.1962. The Explanation reads thus:- "Explanation - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." According to the explanation, expenditure incurred for any purpose which is an offence or which is prohibited by law, is not entitled for deduction. Thus, the amount paid on account of compounding fee as compensation for condoning deviations from original sanctioned plan in view of the Explanation to Section 37(1) of the Act would not be admissible. The Karnataka High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and, therefore, only such disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader. Therefore, where a penalty is incurred for the contravention of any specific statutory provisions, it cannot be said to be a commercial loss failing on the assessee as a trader the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business. "... In our opinion, no expense which is paid by way of penalty f or a breach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business. The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business." (p. 359) Further, a similar view is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion No.(ii),the assessee had made donation by way of clothes. The deduction under Section 80G of the Act was declined by the Tribunal. Learned counsel for the assessee was unable to show in the light of Explanation 5 to section 80G which was inserted by Finance Act 1976 effective from 1.4.1976 that the deduction was admissible. It would be apt to reproduce Explanation 5 to section 80G of the Act:- "Explanation 5.-For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money." In view of the above, the assessee could not claim deduction under Section 80G of the Act in respect of donations by way of clothes sent to Prime Minister Relief Fund for Gujarat Earthquake relief the same being in kind and not in cash, cheque or draft. The Tribunal was right in declining the benefit under Section 80G of the Act. 10. With regard to Question No.(iii), learned counsel placed reliance on judgments in Sri Venkata Satyanarayana Rice Mill Contractor Co. vs. CIT, (1997) 223 ITR 101(SC), Sassoon J. David and Co. (P.) Ltd. vs. Commissioner of Income-Tax,(1979) 118 ITR 261(SC) and ACIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether made voluntarily or at the instance of the authorities concerned would not disentitle the assessee from claiming deduction under section 37(1) of the Act. Applying the aforesaid reasoning to the facts of the present case, in our view, the claim of the assessee is not in order. In the instant case there is no material or evidence to show that the contribution in question was either directly connected or related to the carrying on of assessee's business or that there was any benefit resulting to the assessee's business thereof. The assessee may be correct in saying that the contribution has been made on the appeal by the Government authorities and that the same was for public good but the tests laid down by the Hon'ble Supreme Court, as referred to above, do not appear to have been fulfilled. Thus, the parity of reasoning enunciated by the Hon'ble Supreme Court in the case of Sri Venkataya Satyanarayana Rice Mills (supra) does not help the case of the assessee. Similarly we have perused the decision of the Tribunal in the case of Nahar Spinning Mills Limited (supra) and find that the expenditure was held allowable under section 37(1) only after noticing that it would have an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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