DY.COMMISSIONER OF INCOME-TAX,(ASSTT)SR-1, BARODA vs. M/S. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD.

Facts

The appeals by the Dy. Commissioner of Income-tax (Assstt) Sr-1, Baroda (the revenue) challenge a common order dated 06.03.2006 passed by the Income-Tax Appellate Tribunal (ITAT). The ITAT had partly allowed appeals filed by the revenue against the assessee, M/s. Gujarat Narmada Valley Fertilizers Co. Ltd. For Assessment Year 1994-95, the assessee filed a return declaring nil income after set-off of carried forward investment allowance, later revised. An order under Section 143(3) was passed by the Assessing Officer. The CIT(Appeals) partly allowed the assessee's appeal. The revenue then appealed to the ITAT, which also partly allowed the revenue's appeals, leading to the present appeals before the High Court.

Held

The High Court held that the question of law involved in these appeals has already been answered by the Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra). The Apex Court held that any contribution made by an assessee to a public welfare fund, which is directly connected or related to the carrying on of the assessee's business or results in benefit to the assessee's business, is to be regarded as an allowable deduction under Section 37(1) of the Income Tax Act, 1961. Such a donation, whether voluntary or at the instance of authorities, made to a Chief Minister's Relief Fund or a similar public benefit fund, with a view to securing benefit to the assessee's business, cannot be regarded as opposed to public policy. The mere fact that making a donation for a charitable or public cause results in government patronage or benefit is no ground to deny deduction under Section 37(1) if the payment was made for the purpose of the assessee's business. The High Court also noted that it had previously answered the issue in favour of the assessee in another Tax Appeal. Therefore, the question of law was answered in favour of the assessee and against the revenue. Both appeals were dismissed.

Key Issues

1. Whether the ITAT was right in law and facts in allowing the assessee's claim of contribution of Rs. 1,10,00,000 for AY 1994-95 to the Chief Minister's Earthquake Relief Fund and State Government as expenditure incurred for the purpose of business, allowable under Section 37(1) of the Income Tax Act, 1961? 2. Whether the ITAT was right in law and facts in allowing the assessee's claim of contribution of Rs. 22,15,000 for AY 1995-96 to the Chief Minister's Earthquake Relief Fund and State Government as expenditure incurred for the purpose of business, allowable under Section 37(1) of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that the question of law is covered by the Apex Court decision in Sri Venkata Satyanarayana Rice Mill Contractors Co. v. Commissioner of Income Tax (223 ITR 101) and a decision of the High Court in Tax Appeal No. 457 of 1999. The assessee supported the impugned order of the Tribunal. Revenue's Contention: The revenue submitted that the Tribunal committed an error in passing the impugned order and did not properly appreciate the material on record, urging for the appeals to be allowed.