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TMI Blog1986 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case, the Tribunal was right in rejecting the assessee's claim for deduction of 61.1 per cent. of Rs. 62,000 donated by it to Mysore Kirloskar Education Trust ?" We may straightaway dispose of questions Nos. 1 and 2 since the answers to them present no problem. In view of the amendment to section 35(2) of the Act by the Finance (No. 2) Act, 1980, retrospectively brought into force from April 1, 1962, counsel on both sides submitted that question No. 1 has to be answered in the negative and in favour of the Revenue. We accordingly answer the same. So far as the second question is concerned, counsel again submitted that a similar question has been considered by this court in CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936 and in the light of the decision, we may answer the question in the affirmative. There, this court has observed (headnote): " The surtax levied on the chargeable profits under the C. (P.) S.T. Act, 1964, is nothing but an additional tax on the profits and gains of an assessee's business. The total income computed under the I.T. Act undergoes a further process of computation under the C. (P.) S.T. Act, to arrive at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meet the expenditure of the school. In the accounting year relevant to the assessment year, the assessee has donated Rs. 62,000 and claimed out of it 61.1 per cent. by way of deduction under section 37(1) of the Act. That claim was based on the ground that 61 per cent. of the school children are the children of the employees and the ex-employees of the assessee. The Income-tax Officer did not allow the exemption as claimed. He, however, allowed 50 per cent. of the donation as deduction under section 80G of the Act. The assessee appealed to the Appellate Assistant Commissioner who also agreed with the view taken by the Income-tax Officer on the question of allowance claimed under section 37(1) and dismissed the appeal. He has, however, granted certain other reliefs with which we are not concerned in these cases. The assessee preferred further appeal to the Income-tax Appellate Tribunal. The Tribunal also did not accept the contention of the assessee. It has given two reasons to reject the claim of the assessee under section 37(1) of the Act. The reasons at para 10 of the order are as follows : " Having considered the rival submissions, in our opinion, the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the income by giving deduction in respect of the donation in question, then section 37 stands excluded. The second reason given by the Tribunal is that since the school run by the trust is also open to the children of persons who are not exclusively the employees of the company, the expenditure incurred by the assessee cannot be said to have been incurred wholly and exclusively for the purpose of the assessee's business. Sri Sarangan, learned counsel for the assessee, urged that both the above reasons given by the Tribunal are unsound and unsustainable. He contended that the donation claimed as an allowance was nothing but an expenditure incurred for the purpose of the assessee's business and it falls under section 37(1) of the. Act. On the second reason given by the Tribunal, counsel urged that one must look into the primary object of the trust and the school that is run, and if the primary object was to provide facilities to the children of the employees and ex-employees of the assessee, section 37(1) of the Act would be attracted to the expenditure incurred thereon. In order to appreciate the contentions, we may examine the relative scope of sections 80G(2) and 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout necessity, but if it is for promoting the business, the deduction would be permissible under section 37(1) of the Act. In Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261, the Supreme Court observed (at pages 275 and 276): "It is relevant to refer at this stage to the legislative history of section 37 of the Income-tax Act, 1961, which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the 'necessity' of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill read 'any expenditure... laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed..." The introduction of the word 'necessarily' in the above section resulted in public protest. Consequently, when section 37 was finally enacted into law, the word 'necessarily' came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law". Again, the words " f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter." In the light of these principles, we may again revert to the reasons given by the Tribunal for rejecting the claim of the assessee. The first reason given by the Tribunal is that section 80G is a special provision and if it applies to the assessee's case, then section 37, which is a general provision, stands excluded. This reason appears to be not sound. We have stated that section 80G and section 37 are not mutually exclusive. If the sum claimed by way of deduction even if it is a donation, could be considered as an expenditure falling under section 37, the assessee could claim it as an allowance in its entirety. The second reason given by the Tribunal is equally untenable. The establishment of the school was primarily to provide facilities for the education of the children of the employees and ex-employees of the assessee. Any expenditure incurred in connection therewith could be claimed as deduction. Merely because some children other than those of the employees and ex-employees are also admitted to the school, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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