THE COMMISSIONER OF INCOME TAX vs. M/S. COSME COSTA AND SONS

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 18 OF 2008 THE COMMISSIONER OF INCOME TAX ... Appellant Versus M/S. COSME COSTA AND SONS ... Respondent Mr. S. R. Rivonkar, Advocate for the Appellant. Mr. V. Frank, Advocate for the Respondent. Coram:- S.A. BOBDE & N. A. BRITTO, JJ. Date:- 16th April, 2008 P.C.:- This is an appeal against the Order of the Income Tax Appellate Tribunal, Panaji Bench holding that the Respondent-Assessee is entitled to deduction under Section 37 of the Income Tax Act on account of a sum of Rs.18,43,528/- for expenses incurred in making contribution to the Mineral Foundation of Goa. The only contention raised on behalf of the Revenue is that the contribution made by the Respondent to the Mineral Foundation of Goa is not an expenditure "laid out wholly or exclusively for the purpose of the business". There is no dispute that the Respondent Firm is an Assessee in respect of the business of mining. In the course of such business it has become a Member of the Mineral Foundation of Goa and contributes a sum of Rs.2/- per metric tonnes of iron ore in addition to the royalty to the Mineral Foundation of Goa whose objects are inter alia to satisfy the statutory requirements of the Goa Rural Improvement and Welfare Cess Act, 2000. The main objects of the Foundation are (a) to address the environmental and social issues concerning the communities in the mining belt of Goa through the formulation and implementation of development programmes; (b) to contribute the economic and social development of the local community (c) to channelize the efforts already underway and to pool together activities to improve the environment etc. Apparently, the CIT-Appellant confirmed the disallowing of the deduction on the ground that the payment made by the Respondent-Assessee is not in compliance with any Government Notification or Regulation on the basis of any statute and there was no compulsion on the part of the Appellant to become Member of the Foundation. Therefore, the payment not being compulsory and on the other hand being voluntary the Respondent is not entitled to the said deduction. The Income Tax Appellate Tribunal has disagreed with this finding. Mr. S. R. Rivonkar, learned Counsel for the Revenue urged that the payment made to the Mineral Foundation of Goa cannot be admitted as a deduction under Section 37 of the Act since the Mineral Foundation of Goa is not a statutory body, nor the payment made to its Members is compulsory. Section 37 of the Act reads as follows:- 37. (1) 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".

We do not find that under Section 37 the character of the person to whom such payment is made is relevant. Nor does it matter if the payment

is compulsory or voluntary. What is crucial is that the expenditure should be laid out or made wholly or exclusively for the purpose of business, unless, therefore, there is some material to show that the Respondent-Assessee made any payment for purposes extraneous to the business of mining voluntarily. This argument on behalf of the Revenue cannot be accepted. Indeed, there appears to be no reason why the Assessee would become Mineral Foundation of Goa but for the fact that they are engaged in the business of mining. Further, there is no reason why the Assessee would make such payment except for the purpose of his business. Mr. Rivonkar, learned Counsel undoubtedly contended to the contrary but there is no material on record to show that any part of the payment made by the Assessee to the Mineral Foundation of Goa is for any purpose other than purpose of the business of mining. In the circumstances, we are not inclined to interfere with the order of the Income Tax Appellate Tribunal and we dismiss the appeal. S.A. BOBDE, J. N. A. BRITTO, J. RD.