ISMAIL J.

The question referred to this court by the Income-tax Appellate Tribunal, Madras Bench, under section 256(1) of the Income-tax Act, 1961, for its opinion, relates to a claim of the assessee for deduction of a sum of Rs. 20, 000 paid by it to the Congress Party as donation The Income-tax Officer who dealt with the matter at the initial stage pointed out that he was not able to follow as to how the said donation could be allowed as an "expenditure" as it was not incidental to the business. The Appellate Assistant Commissioner who disposed of the appeal preferred by the assessee stated that it was well-settled that donation to political parties cannot come in for allowance as business expenditure, and found that the action of the Income-tax Officer was justified. In the second appeal, the Tribunal pointed out that it heard the counsel for the assessee 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 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

"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 chargeable under the head 'profits and gains of business or profession'." *

Consequently, the test for determining the deductibility is to find out whether the expenditure has been laid out or expended wholly and exclusively for the purpose of the business of the assessee in the present case. What exactly is the scope of this expression has been pointed out by the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd. The Supreme Court observed

The aforesaid discussion leads to the following result : The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day-to-day running of a business but also the rationalization of its administration and modernization of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. 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.

"It is against the background of this statement of law as to the allowability of a particular item to deduction under the statutory provision referred to above, the question raised in the present case has to be considered

The question of donation to a political party has come up for consideration before almost all the High Cou