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TMI Blog2018 (12) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of donation or Section 80G of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the assessee was established cannot be disallowed as expenditure not relatable and incurred for ‘business’ purposes. On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created were for third party villagers. The assessee was not the owner of the assets created and developed. The assets created were not capital assets in the hands of the assessee. The assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurred therefore would not be ‘capital’ in nature in the hands of the respondent assessee. - decided against revenue - ITA No. 215/2017 - - - Dated:- 31-10-2018 - MR. SANJIV KHANNA AND MR. ANUP JAIRAM BHAMBHANI JJ. Appellant Through: Mr. Ajeet Sharma, Jr. Standing Counsel for Income Tax Department. Respondent Through: Mr. P. Roy Chaudhari, Mr. Amol Sinha and Mr. Rahul Kochar, Advocates. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred with the sole object or furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration? If the expense is found to bear an element other than the trade or business interest of the assessee the expenditure is not an allowable one. To arrive at the conclusion that the expenditure was dictated solely by business consideration one has to consider the nature of the business, the way it is conducted and any likelihood of the business being adversely affected or its interest being promoted by the refusal or the incurring of the expenditure, as the case may be. The case of assessee can be examined on these lines. There is no business expediency in the expenditure. The assessee has incurred the project expenses in implementing various schemes for social upliftment of farmers and weaker section of society. The expenditure is infact in the nature of donation but not covered U/s 80G of the Income-tax Act, 1961. Accordingly, it is an item to be considered below the line and is not an admissible deduction since not laid out wholly and exclusively for the purpose of business. In view of this, the project expenses of ₹ 3,18,74,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purpose for which the respondent-assessee was established to hold that the object and purpose would be the relevant consideration for deciding whether or not the expenses incurred would qualify for deduction under Section 37 of the Act. The Assessing Officer had erroneously disallowed the expenditure ignoring the social welfare activities undertaken by respondent-assessee in terms with the objective and purpose for which it was established. They also agreed that the assets created in the form of forests, waste land, check dams, ponds etc. were the properties of the villagers and were managed through village communities. The assets did not belong to and were not owned by the respondent-assessee. 7. The reasons and grounds given by the Commissioner of Income Tax (Appeals) and the Tribunal do not merit interference. 8. Section 37 (1) of the Act reads as under:- 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out or expended wholly and exclusively for the purpose of such business and (vi) it should not be in the nature of capital expenditure should concur. (2) Though the expressions for the purposes of the business is wider in scope than the expression for the purpose of earning profits and may comprehend many acts incidental to the carrying on of a business its limits are implicit in it and the purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. (3) The expenditure incurred is on the ground of commercial expediency and in order, indirectly, to facilitate the carrying on of the business. (4) The fact that there was no compelling necessity to incur the expenditure on which deduction is claimed is irrelevant to constitute expenditure under S. 37(1) of the Act. (5) Even an expenditure incurred by an assessee in the course of his or its business voluntarily and without necessity can be allowed as a deduction under S. 37(1) of the Act if it is incurred for promoting the business and to earn profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively for the purpose of business was satisfied. In the said case, it was observed that the object of making donation to the Chief Minister s Relief Fund was a matter of commercial expediency to felicitate obtaining of permits which were necessary for the trade. Permits were granted in proportion to the donations made and thus, there was a nexus. The contention of the Revenue that the expenditure had dual purpose of business and charity was without merit and it did not matter whether the expenditure had resulted in benefit to a third party or charity. The reason being that the commercial expediency has to be given an expanded and not restricted meaning. Noticeably, while examining the Income Tax Bill, 1961, the Legislature had rejected inclusion of the word necessarily in Section 37 (1) of the Act, agreeing with the Select Committee. Thus, the expression for the purpose of business is wider in scope than the expression for the purposes of earning profits . This decision also refers to case law where political donations have been allowed as a deduction where they were made for the purpose of trade and not when there was no nexus between donation and business of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the respondent-assessee performing and undertaking the social-welfare economic activities. Grants received from government and foreign agencies were to be utilized for the specific purpose i.e. the object and purpose of social and economic upliftment etc. If the respondent assessee was not engaged in and had not undertaken the aforesaid activities, it would not have received the grants and would not have undertaken sale and marketing of fertilizers. The respondent-assessee was therefore required to incur the said expenditure, in order to run, operate and continue its business. 14. We perceive that there is a degree of contradiction in the plea raised by the Revenue, when they claim that the respondent-assessee was not engaged in business or the expenditure incurred was not on account of business expediency. Income earned by the respondent-assessee has been treated and taxed under the head profits and gains of business and profession. In the given facts, it would be incongruous for the Revenue to urge that the purpose and goal behind the activities undertaken by the respondent-assessee was not commercial but charity as the intent and motive behind them was not to earn pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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