VOLTAS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under s. 256(1) of the IT Act, 1961 made at the instance of the assessee, the Tribunal has referred the following question of law to this Court for opinion :

(2.) THE facts are very brief. During the accounting period relevant to the asst. yr. 1973-74, the assessee paid a sum of Rs. 75,000 to the Tata Refugee Relief Project and this amount was claimed before the ITO as an expenditure allowable as a deduction under s. 37(1) of the IT Act, 1961 ("the Act"). THE contention of the assessee was that the Refugee Relief Project was set up by the Tata Companies at Kishanganj, Patna, in Bihar to assist in the alleviation of human suffering and preserving the private and public property from the Bihar floods. It was also contended that the company had necessarily to participate in the said project by making the above mentioned payment. It was further contended that the assessee had a branch office in Patna in Jamshedpur and the total sales for the year under consideration of the Patna branch amounted to Rs. 827.30 lacs which was about 13.8% of the total sales of the company. THE gross profits earned by the said branch for the corresponding period amounted to Rs. 103.98 lacs. It was, therefore, contended that for such a high business, it was necessary for the assessee to participate in the Bihar flood relief by contributing the above referred amount to keep good relations. THE ITO did not accept the claim of the assessee and this action of the ITO was confirmed by the AAC in appeal. THE AAC observed that the object for which the assessee-company had contributed to the project might no doubt be laudable but it did not in any way alter the character of the payment which was clearly in the nature of donation. THE AAC further observed that the provision of relief to the persons affected by floods in Bihar was not in the course of carrying on of the business and so the expenditure incurred for this purpose could not be considered as a legitimate business outgoing. THE AAC also noted that a Refugee Relief Fund had been floated by the State/Central Government to provide aid to the people affected by the floods and donations to such fund were exempt under s. 80G of the Act. So, undertaking refugee relief work separately by the Tata group of companies was merely a charitable activity and the contribution made to it by the assessee-company would certainly be in the nature of donation. On second appeal by the assessee, the Tribunal confirmed the order of the AAC holding that the said expenditure had not been incurred wholly and exclusively for carrying on the business of the assessee and, as such, the same was not allowable as a deduction under s. 37 of the Act. Aggrieved by the finding of all the authorities including the Tribunal, the assessee applied for reference under s. 256(1) of the Act and the Tribunal at its instance, has referred the question set out above to this Court for opinion.

(3.) THE learned counsel for the assessee next referred to the decision of the Supreme Court in Sassoon J. David & Co. P. Ltd. vs. CIT (supra), more particularly the following observation :