ORDER :

1. Heard learned counsel on both sides. These civil appeals filed by the assessee pertain to Assessment Years 1985-1986, 1986-1987, 1989-1990, 1990-1991 and 1992-1993.

2. The assessee is a limited Company engaged in the business of extraction of manganese and iron ore. The assessee is also a mine owner. For Assessment Year 1985-1986, the assessee filed its Return of Income on 30th October, 1985 declaring a loss of Rs. 8,65,97,200/-. Subsequently, the Company filed its revised Return of Income declaring a loss of Rs. 12,83,16,800/-.

3. One of the claims made for deduction by the assessee was under Section 37(1) of the Income Tax Act, 1961 [`Act', for short]. The assessee claimed that it had spent a sum of Rs. 11,40,641/- as welfare expenses towards providing education to its employees' children. During the course of discussion with the Assessing Officer, the Company stated that it had made payments to other educational institutions where the children of its employees were studying. At this stage, it is important to note that assessee has established Sandur Residential School and Sandur Education Society for imparting education to students in that area.

4. Before us, it has been argued on behalf of the assessee that these payments were made by way of reimbursement to cover the deficit which the school incurred during the relevant accounting year. In that connection, reliance was placed on the findings given by the Income Tax Appellate Tribunal [`ITAT', for short] and the High Court., CIT v. Sandur Manganese & Iron Ores Ltd., Income Tax Referred Cases Nos. 13-24 of 2002, decided on 21-3-2005 (KAR) However, what we find from the assessment order for Assessment Year 1985-1986 and from the Order of Commissioner of Income Tax (Appeals) [`C.I.T. (A)' for short] is that the assessee has made payments to schools other than Sandur Residential School and Sandur Education Society, which fact has not been discussed either in the Order of ITAT or in the Order of the High Court. In fact, before the Assessing Officer as well as before C.I.T. (A), we do not find the argument of the assessee that these were reimbursements. As stated above, we are concerned with Assessment Years 1985-1986, 1986-1987, 1989-1990, 1990-1991 and 1992-1993.

5. The interpretation of Section 40A(9) of the Act clearly brings out a dichotomy between `contribution' and `reimbursement'. Section 40A(9) of the Act was inserted by Finance Act No.2 of 1984. In the Explanatory Memo to the Finance Bill, 1984, the following explanation indicates the reasons why the word `contribution' finds place in Section 40A of the Act. We quote hereinbelow Paragraphs 35, 36 and 37 of the Memorandum:

"35. Sums contributed by an employer to a recognised provident fund, an approved superannuation fund and an approved gratuity fund are deducted in computing his taxable profits. Expenditure actually incurred on the welfare of employees is also allowed as deduction. Instances have come to notice where certain employers have created irrevocable trusts, ostensibly for the welfare of employees, and transferred to such trusts substantial amounts by way of contribution. Some of these trusts have been set up as discretionary trusts with absolute discretion to the trustees to utilise the trust property in such manner as they may think fit for the benefit of the employees, without any scheme or safeguards for the proper disbursement of these funds. Investment of trust funds has also been left to the complete discretion of the trustees. Such trusts are, therefore, intended to be used as a vehicle for tax avoidance by claiming deduction in respect of such contributions, which may even flow back to the employer in the form of deposit.

36. With a view to discouraging the creation of such trusts, the Bill seeks to make a provision that no deduction shall be allowed in the computation of taxable profits in respect of any sums paid by the taxpayer as an employer towards the setting up of, or as contribution to, a