9911796707
TMI Blog1976 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the departmental representative who relied on the decision of the Calcutta High Court in Indian Steel and Wire Products Ltd. v. Commissioner of Income-tax [1968] 69 ITR 379 (Cal), to which we shall have occasion to refer further, and stated that according to that judgment, which discussed all the arguments for and against the claim, the amount could not be allowed as a deduction and that that was the view taken by the Full Bench of the Tribunal also. It was thereafter that the matter has come up before this court on a reference made by the Income-tax Appellate Tribunal. The question that has been referred to this court is a simple one, viz. : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,000 is admissible as a deduction under section 37(1) of the Income-tax Act, 1961?" As the question itself postulates, the claim has to be considered against the background of the statutory provision contained in section 37(1) of the Income-tax Act, 1961, corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922. Section 37(1) of the Income-tax Act, 1961, states : " Any expenditure (not being expenditure of the nature described in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears to be a plea of the company to have a legal sanction to bribe the Government of the day, to induce policies that will help the company in its business. A company's policy should be determined by its shareholders who subscribe to its capital, and carried out by its board of directors, who manage the company. Such policy should, therefore, stand on its own merits and on the convictions and conscience of its shareholders. To induce the Government of the day by contributing money to the political funds of political parties, is to adopt the most sinister principle fraught with grave dangers to commercial as well as public standards of administration. The object is stated plainly to be ' to contribute to the funds of political parties which will advance policies conducive to the interest of the company '. Persuasion by contribution of money lowers the standard of administration even in at welfare state or democracy. To convert convictions and conscience by money is to pervert both democracy and administration. Its dangers are manifold. Joint stock companies are not intended to be adjuncts to political parties and possible sources of revenue for these parties. They are statutory bod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out ([1966] 62 ITR 813, 815 (All)) : " In these circumstances, the facts found do not indicate any nexus between this contribution to the Congress parliamentary board and expenditure incurred for the purpose of the business. When there is no direct nexus between the business of the company and this contribution, it appears to be impossible to hold that the assessee-company discharged the burden of proof which lay on it to show that this expenditure was wholly and exclusively for the purpose of the business. " In Indian Steel Wire Products Ltd. v. Commissioner of Income-tax [1968] 69 ITR 379, 395 (Cal), which has been referred to by the Tribunal, a Bench of the Calcutta High Court has considered this question very elaborately. The legitimacy, the morality and the business expediency of making a donation to a political party has been considered so thoroughly that it may be difficult to find an argument for or against the claim not mentioned in the judgment. Even in that case, the Calcultta High Court pointed out that it may be in given circumstances a donation to a political party may constitute an allowable deduction under section 37(1) of the Income-tax Act, 1961 ; but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Congress party. In dealing with the claim, the court observed (page 17) : " While it is true that the expenditure incurred need not necessarily yield results or be incurred to directly benefit the business or be directly related to the earning of income, yet it must be incidental to the business and must be necessitated or justified by commercial expediency. Before an expense can be allowed under section 10(2)(xv), it must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. The assessee has to establish a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader. In short, only such expenditure can be allowed which is really incidental to the trade itself. An expenditure remotely connected with the trade does not qualify for permissible deduction. " In that particular case, the Tribunal had recorded a finding that the payment had no connection with the business of the assessee ; and in view of that, the court upheld the disallowance made by the Tribunal. The decision of the Punjab and Haryana High Court in Ambala Bus Synd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax v. Badrinarayan Shrinarayan Akodia [1975] 101 ITR 817, 820 (MP) is a decision of the Madhya Pradesh High Court, dealing with a claim for deduction under section 37(1) of the Income-tax Act, 1961, in respect of a donation made to the Chief Minister's Drought Relief Fund. The claim of the assessee was that the assessee was compelled to make the donation in return for the grant of an export permit and, therefore, the donation made by it was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. The High Court accepted the finding of fact arrived at by the Tribunal, namely, that the donation was only voluntary and proceeded to deal with the claim on that basis. As a matter of fact, in relation to the claim of the assessee that the donation was compulsory, the court observed : " ........ on the assessees' own contention that the donations were compulsory and as a condition precedent to the grant of permit, the assessees would have no case. If that had been the position, the permits including the donations, would have been vitiated as being opposed to public policy and, therefore, void under section 23 of the Indian Contract Act. " On the basis that the donati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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