ANDHRA SUGARS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference under section 256 of the Income-tax Act, 1961, relates to the income-tax assessment year 1974-1975. The question referred for consideration is :

(2.) The assessee is a leading company manufacturing and selling sugar in the State of Andhra Pradesh. For the assessment year 1974-1975, it declared an income of Rs. 1.07 crores and was finally assessed on Rs. 1.20 crores. In the computation of income, the assessee claimed by way of deduction, certain expenditure incurred in connection with its silver jubilee celebrations. These expenses included a sum of Rs. 77,087 incurred by the assessee for giving silver momentous to the shareholders and directors. It appears that the expenditure incurred on account of the silver jubilee celebrations was allowed as business expenditure but the expenditure to the above extent of Rs. 77,087 was disallowed on the ground that it was not incurred in connection with the business. The consideration that was brought to bear upon the matter is that the silver momentous presented to the shareholders and directors do not indicate a connection between the business carried on by the assessee and the presentation of the mementoes.

(3.) Learned counsel for the assessee, Sri Parvatha Rao, submits that although they are technically shareholders, almost all of them are sugarcane growers who supply sugarcane to the factory. The transactions of purchase of sugarcane accounted for the continued prosperity of the company in its business and, in that sense, learned counsel claims, it is not proper to consider these small momentous as having been given to the shareholders on considerations other than business. While we have no reason to disbelieve the aforesaid statement of learned counsel for the assessee, we do not find a categorical finding to that effect on the record. Nevertheless, the shareholders constituting a large number of 2,000, as we are told, cannot be considered entirely distinct and separate from the various other persons having business connections. Over a long period of 20 years, the shareholders, by their conduct contributed to the prosperity of the company in its business and there is nothing uncommon in the assessee-company endeavouring to recognize the part played by the shareholders in the prosperity of the company by giving them small momentous. We do not consider that the causal connection between the business carried on by the assessee and the shareholders is demolished merely by reason of the shareholders being other than business customers. As for as the directors are concerned, there can be little dispute that they worked for the company and played a significant part in the conduct of the business. Considering the magnitude of the income earned by the assessee and the small expenditure of about Rs. 35 on each silver memento presented to the shareholders or directors, we are unable to support the Revenues contention that the expenditure is not wholly and exclusively incurred for the purpose of business qualifying for deduction under section 37 of the Income-tax Act.