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1975 Supreme(MP) 64
IN THE HIGH COURT OF MADHYA PRADESH
P.K. Tare, C.J. and P.D. Mulye, J.
Additional Commissioner of Income-tax
Vs.
Badrinarayan Shrinarayan Akodiya
Miscellaneous Civil Case Nos. 326 and 335 of 1973
Decided On: 18.07.1975
For Appellant/Petitioner/Plaintiff: P.S. Khirwadkar, Adv.
For Respondents/Defendant: S.C. Goyal, Adv.
Voluntary donations to political parties or Government sponsored funds with the object of gaining some advantage in future would not be a deductible expense under Section 37(1) of the Income Tax Act, 1961.
Headnote:
INCOME TAX - DEDUCTION - BUSINESS EXPENSES - DONATION TO CHIEF MINISTER'S DROUGHT RELIEF FUND - WHETHER ALLOWABLE - SECTION 37(1) OF THE INCOME TAX ACT, 1961 - SECTION 80G OF THE INCOME TAX ACT, 1961.
Fact of the Case:
The assessee, a company, made donations to the Chief Minister's Drought Relief Fund. The assessee claimed deduction of the said amounts as business expenses under Section 37(1) of the Income Tax Act, 1961. The Income Tax Officer did not accept the contention of the assessee and added the amounts of donations to the assessee's income. On appeal, the Appellate Assistant Commissioner held that the assessees were entitled to deductions under Section 80G of the Income Tax Act, 1961, as donations towards charity. The Income Tax Appellate Tribunal came to the conclusion that the assessees were entitled to deduction of the said amounts of donations as business expenses under Section 37(1) of the Income Tax Act, 1961.
Finding of the Court:
The High Court held that the donations by the assessee to the Chief Minister's Drought Relief Fund could not be allowed as business expenses under Section 37(1) of the Income Tax Act, 1961, but that they could properly be allowed as voluntary donations under Section 80G(2)(a)(v) of the Income Tax Act, 1961.
Issues: Whether the assessee is entitled to deduction as business expenses under Section 37(1) or as donation to charity under Section 80G of the Income Tax Act, 1961.
Ratio Decidendi: The Court held that the phrase "for the purposes of the business" has a particular meaning, namely, either the expenditure must be necessary for the purposes of the business or it may have to be incurred on account of the practice prevailing in any particular trade or business. It will not include any voluntary donation made by an assessee for purposes of charity.
Final Decision: The Court answered the question referred to it as follows: "That, on the facts and circumstances of the case, the Tribunal was not in law justified in allowing deduction of the amount paid by the assessee as contribution to the Chief Minister's Drought Relief Fund by holding it as an admissible deduction under Section 37(1) of the Income Tax Act, 1961."
P.K. Tare, C.J.
1. This judgment shall also govern the disposal of Misc. Civil Case No. 326 of 1973 (Additional Commissioner of Income Tax v. Choodamal Laxminarayan).
2. In these cases the Income Tax Appellate Tribunal has referred the following common question for our opinion :
"Whether, on the facts and circumstances of this case, the Tribunal was in law justified in allowing deduction of the amount paid by the assessee as contribution to the Chief Minister's Drought Relief Fund by holding it as an admissible deduction under Section 37(1) of the Income Tax Act, 1961?"
3. The present references arise on the following facts. In Misc. Civil Case No. 335 of 1973, the respondent, M/s.Badrinarayan Shrinarayan, was being assessed to Income Tax for the assessment year 1968-69 for which the accounting period ended in the Diwali of 1969. The respondent had paid an amount of Rs. 30,900 as a donation to the Chief Minister's Drought Relief Fund. Similarly, in Misc. Civil Case No. 326 of 1973 the respondent-assessee had paid an amount of Rs. 7,110, towards the Chief Minister's Drought Relief Fund. The assessment year was 1968-69 for which the accounting period ended in the Diwali of the year 1969. The assessees claimed deduction of the said amounts of donations as business expenses under Section 37(1) of the Income Tax Act, 1961. The Income Tax Officer did not accept the contention of the assessee and added the amounts of donations to the assessees' income. It was held that the said donations had no connection with the export permits of gulabi chana. On an appeal to the Appellate Assistant Commissioner, the appellate authority substantially agreed with the finding of the Income Tax Officer that these contributions had no connection with the export permits of gulabi chana. However, it was of the opinion that the assessees were entitled to deductions under Section 80G of the Income Tax Act, 1961, as donations towards charity. On the other hand, the Income Tax Appellate Tribunal came to the conclusion that the assessees were entitled to deduction of the said amounts of donations as business expenses under Section 37(1) of the Income Tax Act, 1961.
4. On application by the department, the Appellate Tribunal has referred the question noted above for our opinion under Section 256(1) of the Income Tax Act, 1961.
5. Therefore, the question for consideration is whether the assessee is entitled to deduction as business expenses under Section 37(1) or as donation to chanty under Section 80G of the Income Tax Act, 1961.
6. The parties were at variance with respect to the nature of the donation. It was the contention of the assessee that the donations were compulsory and export permits were not at all given unless the assessees contributed some donations to the Chief Minister's Drought Relief Fund. The department's contention was that these donations were voluntary and deduction at the most could only be claimed as voluntary donation to charity under Section 80G of the Income Tax Act, 1961. The departmental authorities have uniformly found that the donations were voluntary. In a reference under Section 256(1) or 256(2) of the Income Tax Act, 1961, it is not the task of the High Court to reassess the material and come to its own findings. Therefore, we shall take the finding of the Income Tax Appellate Tribunal as final and binding to the effect that these donations were voluntary, although they may have some indirect connection with: the export permits of gulabi chana. The Chief Minister's letter, dated 5th September, 1967 (annexure "D" at page 41 of the paper-: book in Misc. Civil Case No. 326 of 1973), was very clear in this behalf that the donations would be voluntary. It is true that some Ministers made contrary statements as is clear from the annexures on record. But it may. also be that the members of the so-called Madhya Pradesh Anaj Tilhan Vyapari Maha Sangh might have understood the action of the State, Government in some other light. It is
