M/s Maral Overseas Ltd., V. The JCIT, S. R. 2,

ITA 251/IND/2001

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1395 (ITAT-INDORE)
• Duration Of Justice: 8 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2009
• Assessment Year: 1995-1996
• Appeal Filed On: 16-07-2001
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Capital asset; Business expenditure; Question of law; Commercial expediency
• Section: 37(1); 80G; 251; 37; 15

Judgement Text

PAGE 1 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : N.A. I.T.A.NOS.251 & 252/IND/2001 A.YS. : 1995-96 & 1996-97 M/S.MARAL OVERSEAS LIMITED, JT. COMMISSIONER OF IN COME-TAX, C/O ARORA, BANTHIAN & TULSIYAN, C.A. VS SPECIAL RANGE 2, INDORE. 6 TH FLOOR, SILVER ARC PLAZA, 20/1, NEW PALASIA, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI AJAY TULSIYAN, C.A. RESPONDENT BY : SMT.APARNA KARAN, SR.DR DATE OF HEARING : 13/11/2009 O R D E R PER V.K. GUPTA, A.M. THESE APPEALS BELONG TO SAME ASSESSEE AND ARISE OUT OF ORDER OF THE LD. CIT(A)-II, INDORE DATED 06.06.2001, FOR THE ASS ESSMENT YEARS 1995-96 & 1996-97. SINCE THE COMMON ISSUES ARE INVOLVED, HE NCE, THESE APPEALS WERE HEARD TOGETHER AND WERE DISPOSED BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. PAGE 2 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED 3. FIRSTLY, WE SHALL TAKE UP ASSESSEES APPEALS IN I.T .A.NO. 251/IND/2001. 4. GROUND NO. 1 READS AS UNDER :- THAT THE LD. CIT(A) ERRED IN MAINTAINING THE DISAL LOWANCE OF RS. 10,00,000/- BEING AMOUNT PAID BY THE APPELLA NT TO A SCHOOL AND CLAIMED AS DEDUCTION UNDER THE HEAD STAF F WELFARE EXPENSES. IT IS SUBMITTED THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID CLAIM OF THE AP PELLANT BEING LEGAL AND PROPER, THE SAME, REQUIRES TO BE AL LOWED. 5. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE MADE A CONTRIBUTION OF RS. 10 LAKHS TO VIVEKANAND EDUCATIONAL SPORTS, CULT URAL AND WELFARE SOCIETY, WHICH WAS CLAIMED AS STAFF WELFARE EXPENSE S. THE ASSESSEE ALSO FURNISHED COPY OF MEMORANDUM OF THIS SOCIETY TO SHO W THAT GOVERNING BODY OF THIS SOCIETY CONSISTED OF REPRESENTATIVE OF THE ASSESSEE COMPANY. THE A.O. ALSO NOTED THAT THE SOCIETY HAD BEEN GRANT ED REGISTRATION U/S 80G OF THE ACT. THE A.O. REQUIRED THE ASSESSEE TO E XPLAIN HOW THIS EXPENDITURE COMPLIED WITH THE REQUIREMENT OF THE AS PECT OF COMMERCIAL EXPEDIENCY AS ENVISAGED U/S 37 OF THE ACT. THE ASSE SSEE RELIED ON VARIOUS JUDICIAL DECISIONS IN THIS REGARD. THE A.O., HOWEVE R, HELD THAT THE SCHOOL RUN BY THE SOCIETY WAS OUTSIDE THE FACTORY CAMPUS, THE ASSESSEE COMPANY PAGE 3 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED ALONE WAS NOT RUNNING THE SCHOOL NOR THE ENTRY WAS RESTRICTED TO THE CHILDREN OF THE EMPLOYEES OF THE ASSESSEE COMPANY. THE A.O., ACCORDINGLY HELD THAT THE SOCIETY WAS AN INDEPENDEN T INSTITUTION, HENCE, CONTRIBUTION MADE BY THE ASSESSEE TO THE SCHOOL COU LD NOT BE TERMED AS BUSINESS EXPENDITURE OF THE ASSESSEE. HE ALSO RELIE D ON THE FACT THAT IF THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80-G, THAT COULD BE ALLOWED TO THE EXTENT OF RS. 5 LAKHS SUBJECT TO AVAILABILITY OF TH E PROFITS. AGGRIEVED BY THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE L D. CIT(A), WHO, FOLLOWING THE REASONS GIVEN BY HIM, WHILE CONFIRMI NG A SIMILAR DISALLOWANCE IN ASSESSMENT YEAR 1997-98, THE APPELL ATE ORDER FOR WHICH YEAR HAD BEEN PASSED PRIOR TO THIS ORDER, CONFIRMED THE ACTION OF A.O. THE LD. CIT(A), IN ASSESSMENT YEAR 1997-98, RELIED ON V ARIOUS JUDICIAL DECISIONS TO HOLD THAT AN EXPENDITURE U/S 37(1) COU LD BE ALLOWED ONLY IF SUCH EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLU SIVELY FOR THE BUSINESS OF AN ASSESSEE AND IF SUCH EXPENDITURE WAS WHOLLY FOR GRATUITOUS OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS OR WAS MADE BY WAY OF DISTRIBUTION OF PROFITS OR FOR F OSTERING THE BUSINESS OF ANOTHER ONLY, THEN, SUCH EXPENDITURE COULD NOT BE A LLOWED UNDER THAT SECTION. THE LD. CIT(A) ALSO HELD THAT SIMPLY BECAU SE CHILDREN OF EMPLOYEES STUDIED IN THE SCHOOL RUN BY THE SOCIETY , THE RECIPIENT OF IMPUGNED DONATION, THAT FACT WOULD NOT MAKE THE ASS ESSEE TO GET THE PAGE 4 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED DONATION MADE BY THE ASSESSEE ALLOWED AS BUSINESS E XPENDITURE U/S 37(1) OF THE ACT. THE LD. CIT(A) RELIED ON VARIOUS JUDICI AL DECISIONS INCOMING AT SUCH CONCLUSION. ACCORDINGLY, HE CONFIRMED THE A CTION OF A.O. IT IS ALSO TO BE NOTED THAT THE ASSESSEE HAD PLACED RELIA NCE ON VARIOUS JUDICIAL DECISIONS. HOWEVER, THE LD. CIT(A) DID NOT DEAL WI TH THEM IN SPECIFIC MANNER NOR GAVE ANY COMMENTS THEREON AS REGARD TO W HETHER HE WAS AGREEING OR DIS-AGREEING WITH THEM. AGGRIEVED BY TH IS, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS, MADE LENGTHY ARGUMENTS AND REITERATED THE SUBMISSIONS MA DE BEFORE THE REVENUE AUTHORITIES. HE FURTHER PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS :- 1. CIT VS. RADIATORS LIMITED, 149 CTR (MAD) 400: (1999) 236 ITR 719 (MAD) IN CONNECTION WITH PAYMENT MADE TO PANCHAYAT FOR UPGRADING THE ELEMENTARY SCHOOL TO HIGH SCHOOL. 2. MAHINDRA & MAHINDRA LIMITED VS. CIT, 182 CTR (BOM) 34: (2003) 261 ITR 501 (BOM). PAYMENT TO SOCIETY WHICH RUNS SCHOOL IN WHICH CHILD REN OF EMPLOYEES STUDIED. PAGE 5 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED 3. CIT VS. MADRAS REFINERIES LIMITED, 266 ITR 170 (MAD ) : (2004) 138 TAXMAN 261, AMOUNT SPENT ON AIDING A LOCAL SCHOOL IS DEDUCTIBLE . 4. CIT VS. TRAVANCORE COCHIN CHEMICALS LIMITED, 243 ITR 284 (KER) : (2000) 111 TAXMAN 692 ( KER ) CONTRIBUTION TO SCHOOL IN WHICH EMPLOYEES CHILDREN WERE STUDYING IS AMOUNT SPENT FOR WELFARE OF EMPLOYEES, HENCE DEDUCTIBLE. 5. S.A. BUILDERS LIMITED VS. CIT(A) & ANOTHER, 288 ITR 1 ( S. C.) MEANING OF FOR THE PURPOSE OF BUSINESS AND COMMER CIAL EXPEDIENCY EXPLAINED. THE EXPRESSION FOR THE PURPO SE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FO R THE PURPOSE OF EARNING PROFITS 6. INCOME TAX APPELLATE TRIBUNAL VS. B. HILL & CO.(P) LTD, (1982) 29 CTR (ALL) 301 : (1983 ) 142 ITR 185 (ALL) LEGISLATION REFERRED TO SECTION 37,2(18), 1965FA 2(5)(A) 1966FA2(5)(A), 1967FA 2(40(A)(I). BUSINESS EXPENDITURE ALLOWABILITY DONATIONS TO SCHOOLS SET UP BY ASSESSEE MADE IN THE ASSESSEES CHARACT ER AS A TRADER AND WITH A VIEW IN FACILITATE SMOOTH RUNNING OF ITS BUSINESS DONATION AMOUNT ALLOWABLE AS THE SAME WA S MOTIVATED BY CONSIDERATION OF COMMERCIAL EXPEDIENCY . PAGE 6 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED 7. CIT VS. VAZIR SULTAN TOBACCO CO.LTD., 169 ITR 139 (AP) : (1987) 35 TAXMAN 294. CONCLUSION CONTRIBUTION FOR CORPUS OF AN IRREVOCABLE TRUST INT ENDED FOR THE BENEFIT OF EMPLOYEES OF THE ASSESSEE OVER WHICH THE ASSESSEE IS NOT HAVING ANY CONTROL AND THE FORMATIO N EXPENSES ARE ALLOWABLE AS BUSINESS EXPENDITURE. 8. CIT VS. BHARAT COMMERCE & INDUSTRIES LIMITED, (1990) 184 ITR 90 (DEL) REFERENCE QUESTION OF FACT TRIBUNAL FOUND AS FA CT THAT THE SCHOOL TO WHICH DONATION HAD BEEN GIVEN HAD ADM ITTED THE CHILDREN OF THE WORKERS AND EMPLOYEES OF ASSESS EE COMPANY AND, IN FACT, THE MAJORITY OF THE STUDENTS WERE CHILDREN OF THE WORKERS-SIMILAR DONATIONS HAD, IN T HE PAST, BEEN REGARDED AS FOR THE PURPOSE OF BUSINESS FIND ING THAT THE DONATION WAS FOR THE PURPOSE OF BUSINESS WAS A QUESTION OF FACT. 9. CIT VS. BELPAHAR REFRACTORIES LIMITED, 1976 CTR (OR I) 371 : (1977)109 ITR 667 (ORI). HELD PAGE 7 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED THE TRIBUNAL FOUND THAT NO CAPITAL ASSET OF THE ASS ESSEE HAS COME INTO EXISTENCE AS A RESULT OF THE CONTRIBUTION S MADE BY THE ASSESSEE. THE AMOUNTS WERE SPENT ONLY AS A PART OF LABOUR WELFARE EXPENSES. AS A RESULT OF THIS EXPEND ITURE, THE EMPLOYEES OF THE ASSESSEE CAN AVAIL THEMSELVES OF T HE HOSPITALIZATION FACILITIES EXTENDED BY THE HOSPITA L AUTHORITIES ON A CONCESSIONAL BASIS. EVEN ASSUMING THAT THERE W AS SOME ENDURING BENEFIT, IT CANNOT BE HELD TO BE ON CAPITA L ACCOUNT. HE FURTHER SUBMITTED THAT THE DECISIONS RELIED ON C IT(A) WERE CLEARLY DISTINGUISHABLE ON FACTS AND IN ONE OF THE CASES I. E. MYSORE KIRLOSKAR LIMITED VS. CIT AS REPORTED IN 166 ITR 836, THE DEC ISION WAS IN FAVOUR OF THE ASSESSEE. THE SUBMISSIONS MADE BY THE ASSESSEE, IN THIS REGARD, ARE AS UNDER :- (ON PAGE NO.6 OF THE LD. CIT(A)S ORDER FOR ASSESS MENT YEAR 1997-98) 1. MEATTLES LIMITED VS. CIT, (1968) 68 ITR 79 (DEL ) LEGISLATION REFERRED TO SECTIONS 37(1), 37(1) CONCLUSION LIFE INSURANCE AND ACCIDENT INSURANCE PREMIA PAID F OR THE GOVERNING DIRECTOR OF A COMPANY IS NOT AN ALLOWABLE EXPENDITURE U/S 10(2)(XV) WHERE THERE IS NO PAGE 8 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED FINDING AS TO HIS QUALIFICATION AND INDISPENSABILIT Y TO THE ORGANIZATION AND ALSO WHERE THERE IS NO SIMILAR PRACTICE PREVALENT IN THE TRADER. 2. ORISSA CEMENT LIMITED VS. CIT, (1969) 73 ITR 14 (DEL) LEGISLATION REFERRED TO SECTIONS 28(I),33, 34, 37, 37(1), CONCLUSION AMOUNT PAID TO POLITICAL PARTY IN CONSIDERATION OF CERTAIN ALLEGED BENEFITS CANNOT BE SAID TO HAVE AND ANY DIRECT LINK WITH THE TRADE OF THE ASSESSEE AND THEREFORE NOT A PERMISSIBLE DEDUCTION. 3. TRAVANCORE TITANIUM PRODUCT LIMITED VS. CIT, (1966) 60 ITR 277 ( S.C.) LEGISLATION REFERRED TO SECTIONS 37, 37(1), CONCLUSION TAX PAID ON NET WEALTH UNDER W.T. ACT IS NOT A PERMISSIBLE DEDUCTION U/S 10(2)(XV) OF 1922 ACT. 4. CIT VS. MALAYALAM PLANTATIONS, (1964) 53 ITR 140 (S . C.). LEGISLATION REFERRED TO SECTIONS 37, 37(1), ED 5, E D 21, ED 53, ED 77, ED 84. CONCLUSION PAGE 9 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED ESTATE DUTY PAID U/S 84 OF THE ED ACT ON BEHALF OF THE DECEASED OWNERS OF SHARES IS AN EXPENDITURE MADE TO DISCHARGE STATUTORY OBLIGATION AND NOT FOR THE PURP OSE OF THE BUSINESS AND HENCE NOT ALLOWABLE AS DEDUCTIO N. THIS IS IN FACT IN FAVOUR OF THE ASSESSEE, AS IT ST ATES THAT FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOP E THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS. 5. C.J.PATEL & CO. VS. CIT, (1986) 158 ITR 486 (GUJ) LEGISLATION REFERRED TO SECTION 37(1), CONCLUSION GUARANTEE COMMISSION PAID TO THE BANK FOR SECURING THE PAYMENT OF TAX FOR MAXIMUM PERMISSIBLE TIME UNDER STATUTORY DISCLOSURE SCHEME IS AN ALLOWABLE BUSINESS EXPENDITURE. 6. SIDDHO MAL & SONS VS. CIT, (1980) 122 ITR 839 (ALL) LEGISLATION REFERRED TO SECTION 37(1), CONCLUSION : PAGE 10 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED COMMISSION PAYMENT MADE BY AN ASSESSEE IN ADDITION TO INTEREST ON DEPOSITS IS NOT A BUSINESS EXPENDITU RE AND RIGHTLY DISALLOWED . 7. MYSORE KIRLOSKAR LIMITED VS. CIT, (1987) 166 ITR 836 (KAR). LEGISLATION REFERRED TO SECTIONS 32, 35(2), 43(1), 37(1), 80G. CONCLUSION : WHERE MONEY IS SPENT BY THE ASSESSEE IN CONNECTION WITH RUNNING OF A SCHOOL FOR THE BENEFIT OF CHILDRE N OF EMPLOYEES, EX-EMPLOYEES AND THE MEMBERS OF THE PUBLIC, THE SAME CAN BE ALLOWED AS BUSINESS DEDUCTI ON U/S 37(1). COPY OF JUDGMENT IS ATTACHED HEREWITH. THIS JUDGMEN T IS, IN FACT, IN FAVOUR OF THE ASSESSEE AND SAY THAT SECTION 37(1) AND 80G ARE MUTUALLY EXCLUSIVELY. (ON PAGE 7 OF THE CIT(A)S ORDER FOR ASSESSMENT YEA R 1997-98). 8. CALCUTTA LANDING & SHIPPING CO.LIMITED VS. CIT, (1967) 65 IGTR 1 ( CAL) LEGISLATION REFERRED TO SECTIONS 37, 37(1) PAGE 11 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED CONCLUSION PAYMENT OF PENSION TO THE WIDOW OF EMPLOYEE, MURDERED WHILE ON DUTY, WAS ONE OF COMMERCIAL EXPEDIENCY, DEDUCTIBLE UNDER SECTION 10(2)(XV), AS THE OBJECT OF THE PAYMENT WAS TO HAVE A LOYAL BODY OF EMPLOYEES AND TO INSTILL A SENSE OF SECURITY AMONG THEM THAT THEIR EMPLOYER WOULD LOOK AFTER THEIR DEPENDENTS, IF SOMETHING UNTOWARD HAPPENED TO THEM WHILE ON DUTY. 9. MALWA VANASPATI & CHEMICAL CO.LTD. VS. CIT, (1985) 154 ITR 655 (MP). LEGISLATION REFERRED TO SECTION 37, CONCLUSION SET ON OF BONUS UNDER SECTION 15(10 OF PAYMENT OF BONUS ACT, 1965, NOT BEING A PRESENT LIABILITY CANN OT BE ALLOWED; NOT EVEN UNDER SECTION 37(1) BECAUSE SECTION 36 APPLIES. (COPY OF THIS JUDGMENT IS ATTACHED HEREWITH. THE IS SUE BEFORE THE HON'BLE M.P. HIGH COURT WAS THAT OF ALLOWANCE OF PROVISION OF BONUS TO EMPLOYEES WHICH PAGE 12 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED IS COVERED U/S 36 AND IT WAS HELD THAT SECTION 37(1 ) BEING A RESIDUAL PROVISION, IT CANNOT BE TAKEN AID OF UNLESS AND UNTIL IT IS ESTABLISHED THAT NONE OF THE PROVISIONS OF SECTION 30 TO 36 ARE APPLICABLE TO BE A GIVEN CASE ) 10. CIT VS. T. S. HAJEE MOOSA & CO., (1985) 153 ITR 422 (MAD). LEGISLATION REFERRED TO SECTION 37, BUSINESS EXPENDITURE FOREIGN TOUR EXPENSES SENIOR PARTNER OF FIRM UNDER TAKING FOREIGN TOUR WIFE OF PARTNER ACCOMPANYING HIM AS HE WAS A DIABETIC EXPENSES ON TRAVEL OF WIFE NOT EXCLUSI VELY FOR BUSINESS PURPOSES OF FIRM DOES NOT QUALIFY FO R ALLOWANCE. 11. CIT VS. CHANDULAL KESHAVLAL & CO, (1960) 38 ITR 601 ( S. C.) LEGISLATION REFERRED TO SECTIONS 37, 37(1). CONCLUSION TRIBUNAL HAVING FOUND AS A FACT THAT THE COMMISSION WAIVED BY MANAGING AGENT WAS FOR REASONS OF COMMERCIAL EXPEDIENCY, SAME WAS ALLOWABLE UNDER SECTION 10(2)(XV). PAGE 13 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED 12. BURLAP DEALERS LIMITED VS. CIT, (1963) 48 ITR 153 ( CAL). LEGISLATION REFERRED TO SECTIONS 37, 37(1), CONCLUSION AGREEMENT WITH A FINANCIER WHO HIMSELF DID NOT ADVANCE ANY MONEY TO ASSESSEE WAS NOT GENUINE AND SHARING BY THE ASSESSEE OF 50% OF ITS PROFITS WITH HIM WAS UNJUSTIFIABLE FROM A COMMERCIAL POINT OF VIEW, AND HENCE AMOUNT PAID TO HIM WAS NOT DEDUCTIBLE UNDER SECTION 10(2)(XV) OF 1922 ACT. 7. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, NARRATED THE FACTS AND PLACED STRONG RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 9. IT IS NOTED THAT THE ASSESSEES FACTORY IS SITUATED 90 KMS. AWAY FROM INDORE IN A VILLAGE IN DISTRICT KHARGONE. IT I S ALSO NOTED THAT THE SOCIETY HAS BEEN FORMED TO RUN A SCHOOL WITH THE HE LP OF TWO OTHER CORPORATE ENTITIES, HAVING FACTORY AT THE SAME LOCA TION. IT IS ALSO NOTED THAT THE FACT THAT CHILDREN OF THE ASSESSEES EMPLOYEES ARE STUDYING IN THIS SCHOOL IS NOT IN DOUBT. IT IS FURTHER NOTED THAT TH E GENUINENESS OF INCURRENCE OF THIS EXPENDITURE IS ALSO NOT IN DISPU TE. IT IS ALSO NOTED THAT C.M.D. OF THIS COMPANY AND OTHER TWO STAFF OFFICIAL S ARE HOLDING PROMINENT POSITION IN THE GOVERNING BODY OF THE SAI D SCHOOL. IN THIS FACTUAL BACKGROUND, WE FIND THAT THE IMPUGNED SUM H AS NOT BEEN ALLOWED PAGE 14 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED AS AN EXPENDITURE FIRSTLY FOR THE REASON THAT NO EX CLUSIVITY IS ATTACHED WITH THE ASSESSEE EITHER IN GOVERNING THE SCHOOL OR IN A DMISSION OF CHILDREN OF ITS EMPLOYEES I.E. THE CHILDREN OF OTHER PERSONS CA N ALSO STUDY. THE OTHER REASON IS THAT SCHOOL IS NOT SITUATED IN THE FACTOR Y CAMPUS OF THE ASSESSEE. IN OUR VIEW, BOTH THESE REASONS ARE DEVOID OF ANY M ERITS FOR DISALLOWING SUCH EXPENDITURE AS IF THE SCHOOL WOULD HAVE BEEN S ITUATED IN THE FACTORY PREMISES AND THE CHILDREN OF OTHER PERSONS WERE NOT STUDYING THEREIN, HOW THIS FACT WOULD HAVE ENTITLED THE ASSESSEE TO CLAIM THE DEDUCTION. FURTHER, IF THE ENTRY OF THE OTHER PERSONS WOULD HAVE BEEN R ESTRICTED, THEN THE EXPENDITURE BURDEN ON THE ASSESSEE WOULD HAVE BEEN MUCH MORE AND IF THAT BE SO, THE ASSESSEE WOULD HAVE CLAIMED MORE EX PENDITURE AS BUSINESS EXPENDITURE. IT IS ALSO A SETTLED JUDICIAL PRINCIPL E THAT THE TERM WHOLLY AND EXCLUSIVELY USED IN SECTION 37(1) CANNOT BE IN TERPRETED IN A MANNER SO AS TO DISALLOW A GENUINE BUSINESS EXPENDITURE, I F THIRD PARTIES ARE ALSO BENEFITED THEREBY SO LONG SUCH EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF CARRYING OF THE BUSINESS OF THE ASSESSEE. HAVING STATED SO, WE ALSO FIND THAT THE DECISIONS RELIED ON BY THE CIT(A ) ARE TOTALLY OUT OF CONTEXT, HENCE, NOT RELEVANT. WE ARE FURTHER OF THE VIEW THAT IF A PAYMENT IS ELIGIBLE FOR DEDUCTION U/S 80-G, THE SAME CANNOT BE DISALLOWED U/S 37(1) MERELY FOR THIS REASON IF SUCH EXPENDITURE SA TISFIES THE OTHER CONDITIONS ATTACHED TO ALLOWABILITY OF A GENUINE BU SINESS EXPENDITURE, AS THESE PROVISIONS OPERATE IN DIFFERENT FIELDS. HOWEV ER, AN ASSESSEE WOULD NOT BE ENTITLED TO CLAIM BENEFIT UNDER BOTH THESE S ECTIONS SIMULTANEOUSLY ON THE SAME PAYMENT I.E. IF AN ASSESSEE HAS INCURRE D AN EXPENDITURE OF CHARITABLE NATURE AND GETS DEDUCTION OF 50% IN COMP UTING GROSS TOTAL INCOME U/S 80G, THEN, HE CANNOT CLAIM THE BALANCE 5 0% AS BUSINESS EXPENDITURE, AS ACTION OF THE ASSESSEE OF CLAIMING A DEDUCTION U/S 80-G PAGE 15 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED RAISES A PRESUMPTION THAT SUCH EXPENDITURE HAS BEEN INCURRED AS A MATTER OF CHARITY AND NOT AS A BUSINESS EXPENDITURE. EQUAL LY, THE REVENUE AUTHORITIES CANNOT DISALLOW A GENUINE BUSINESS EXPE NDITURE, AS STATED EARLIER, MERELY FOR THE REASON THAT THE ASSESSEE CO ULD HAVE AVAILED DEDUCTION U/S 80-G, WHICH IT COULD NOT AVAIL, BECAU SE OF ABSENCE OF POSITIVE PROFITS (I.E. GROSS TOTAL INCOME) . WE ARE FURTHER OF THE VIEW THAT WHEN THE CHILDREN OF ASSESSEES EMPLOYEES STUDY IN THIS SCHOOL, THE EMPLOYEES ARE FREE FROM THE BURDEN OF MAKING ARRANG EMENTS FOR THE EDUCATION OF THEIR CHILDREN, WHICH RESULTS INTO HIG HER EFFICIENCY AND MOTIVATION, HAVING A POSITIVE EFFECT ON THE BUSINES S ACTIVITIES CARRYING ON BY AN ASSESSEE AND, THEREFORE, SUCH ACT OF AN ASSES SEE HAS TO BE CONSIDERED AS UNDERTAKEN IN THE COURSE OF ITS BUSINESS ACTIVIT IES AND FOR THE PURPOSE OF ITS BUSINESS. ACCORDINGLY, WE ACCEPT THIS CLAIM OF THE ASSESSEE AND DIRECT THE A.O. TO ALLOW THIS EXPENDITURE AS BUSINE SS EXPENDITURE. WE ARE FURTHER OF THE VIEW THAT JUDICIAL DECISIONS CITED B Y THE ASSESSEE ALSO STRONGLY SUPPORT THE CLAIM OF THE ASSESSEE. THUS, T HIS GROUND OF THE ASSESSEE STANDS ALLOWED. 10. GROUND NO.2 READS AS UNDER : 2. THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE CL AIM OF THE APPELLANT FOR DEDUCTION U/S 35D OF RS. 19,01,458/- WAS RIGHTLY RESTRICTED BY THE LD. A.O. TO RS. 10,43,30 9/-. IT IS SUBMITTED THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE THE APPELLANT IS LEGALLY ENTITLED TO CLAIM DED UCTION OF PAGE 16 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED RS. 19,01,458/- U/S 35D AND THE SAME, THEREFORE, NO W REQUIRES TO BE ALLOWED IN FULL. 11. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 35-D AT RS. 6,89,501/- ON SHARE ISSUE EXPENSES OF R S. 68,95,011/- INCURRED BY THE ASSESSEE IN THE YEAR UNDER CONSIDER ATION . THE A.O. HELD THAT THIS ISSUE HAD BEEN CONSIDERED IN ASSESSMENT Y EAR 1992-93, WHEREIN TOTAL SHARE EXPENSES ELIGIBLE FOR RIGHT OFF U/S 35- D HAD BEEN ASCERTAINED AT RS. 1,21,51,400/-. HENCE, SUCH ADDITIONAL CLAIM WAS NOT ACCEPTABLE. THE A.O., ACCORDINGLY, DISALLOWED THE SAME. AGGRIEVED B Y THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN THE LD. CIT(A) FOLLOWING HIS FINDINGS IN APPELLATE ORDERS FOR ASSE SSMENT YEAR 1997-98 UPHELD THE ACTION OF A.O. STILL AGGRIEVED, THE ASSE SSEE IS IN APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 1997-98, THE CLAIM U/S 35-D HAD BEE N MADE AT RS. 19,01,458/-, BEING 10 % OF THE EXPENDITURE INCURRED IN ASSESSMENT YEAR 1992-93 AND IN THIS ASSESSMENT YEAR, THE LD. CIT(A) FOLLOWING THE APPELLATE ORDER FOR ASSESSMENT YEAR 1992-93 HELD TH AT CAPITAL EMPLOYED TO WORK OUT THE QUANTUM OF EXPENDITURE ALLOWABLE U/S 3 5-D HAD BEEN ARRIVED AT RS. 41,73,24,000/- AND 2.5 % THEREOF I.E. RS. 1, 04,33,100/- WAS THE ELIGIBLE QUANTUM WHICH COULD BE WRITTEN OFF IN 10 ASSESSMENT YEARS U/S PAGE 17 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED 35-D OF THE ACT. HE FURTHER HELD THAT THE WORKING C APITAL LOAN TAKEN FROM THE BANK COULD NOT BE CONSIDERED AS PART OF CAPITAL EMPLOYED IN VIEW OF THE PROVISIONS OF SECTION 35-D(3) OF THE ACT. 13. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT, IN FACT, TWO ISSUES WERE INVOLVED. HE ELABORATED THIS POINT BY SUBMITTING THAT IN ASSESSMENT YEAR 1992-93, THE ASSESSEE COMPA NY MADE PUBLIC ISSUE OF SHARES FOR THE FIRST TIME AND CLAIMED WRITE OFF OF PRELIMINARY EXPENSES INCURRED IN CONNECTION THEREWITH U/S 35-D OF THE AC T. AS PER THE PROVISIONS OF SECTION 35-D(3), THE REVENUE AUTHORIT IES RECOMPUTED THE QUANTUM OF CAPITAL EMPLOYED AND QUANTUM OF PRELIMIN ARY EXPENSES, WHICH COULD BE CLAIMED AS DEDUCTION U/S 35-D OF THE ACT. THE MATTER REACHED UP TO THE TRIBUNAL AND TRIBUNAL VIDE ITS OR DER DATED 16 TH MAY, 2008, IN I.T.A.NO. 289/IND/2002 FOR ASSESSMENT YEAR 1992-93 HELD THAT THE WORKING CAPITAL LOAN OBTAINED BY THE ASSESSEE F ROM BANK BY WAY OF HYPOTHECATION OF STOCK IN TRADE, STORES AND BOOK DE BTS WOULD NOT FALL WITHIN THE DEFINITION OF LONG TERM BORROWINGS. IN D OING SO, THE TRIBUNAL HAD HELD THAT THE DECISION IN THE CASE OF DY. CIT V S. CORE HEALTH CARE LIMITED, AS REPORTED IN 298 ITR 194, WAS NOT OF ANY HELP, BECAUSE IN THAT CASE, THE HON'BLE SUPREME COURT HAD RESTORED THE MA TTER BACK TO THE HON'BLE HIGH COURT FOR DECISION IN ACCORDANCE WITH LAW BY FRAMING SUBSTANTIAL QUESTION OF LAW. NOW, THE HON'BLE GUJAR AT HIGH COURT IN THE PAGE 18 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED CASE OF DY. CIT VS. CORE HEALTH CARE LIMITED, AS RE PORTED IN 308 ITR 263, HAD HELD THAT AS PER SUB CLAUSE (I) OF CLAUSE (C ) OF EXPLANATION TO SECTION 35-D, THE LONG TERM BORROWING MEANT AS BORR OWING FROM ANY OF THE FOUR ENTITIES MENTIONED THEREIN AND NO TIME LIM IT FOR THE PURPOSE BORROWING HAD BEEN LAID DOWN IN THAT PROVISION. THU S, ONCE IT WAS ESTABLISHED THAT BORROWING WAS FROM ANY ONE OF THE FOUR ENTITIES AS SPECIFIED, THE SAME WOULD BE TREATED AS LONG TERM B ORROWING FOR THE PURPOSE OF WORKING OUT THE AGGREGATE OF CAPITAL EMP LOYED IN THE BUSINESS OF THE COMPANY AND, THEREFORE, FUNDS BORROWED FORM BANKING INSTITUTIONS WERE TO BE INCLUDED IN THE CAPITAL EMPLOYED AND, AC CORDINGLY, DEDUCTION U/S 35-D HAD TO BE WORKED OUT. THE LEARNED COUNSEL CONTENDED THAT, THUS, THE AFORESAID DECISION OF THE TRIBUNAL STOOD OVER-R ULED. HENCE, THIS ISSUE WAS TO BE DECIDED ACCORDING TO THE DECISION OF THE HON'BLE GUJARAT HIGH COURT CITED ABOVE. 14. AS REGARDS TO FRESH CLAIM OF THE ASSESSEE FOR AMORT IZATION OF PRELIMINARY EXPENSES INCURRED IN THE YEAR UNDER CON SIDERATION, THE LEARNED COUNSEL SUBMITTED THAT A.O. DISALLOWED THI S CLAIM MERELY FOR THE REASON THAT HE WAS OF THE OPINION THAT EXPENSES UND ER SECTION 35-D COULD BE ALLOWED IN A STAGGERED MANNER FOR EXPENSES INCUR RED ONLY ONCE, WHICH WAS NOT CORRECT AS TWO SITUATIONS WERE PROVIDED U/S 35-D I.E. THE ASSESSEE EITHER COULD INCUR THESE EXPENSES BEFORE COMMENCEME NT OF BUSINESS OR PAGE 19 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED EXTENSION OR DIVERSIFICATION OF THE BUSINESS AFTER SUCH COMMENCEMENT AND IN THE YEAR UNDER CONSIDERATION, SUCH EXPENSES WERE INCURRED FOR MOBILIZATION OF FUNDS IN CONNECTION WITH EXPANSION UNDERTAKEN BY THE ASSESSEE COMPANY. AS REGARDS THE EVIDENCE TO SUBSTA NTIATE THIS FACT, THE LEARNED COUNSEL REFERRED TO THE RELEVANT PAGES OF T HE DIRECTORS REPORT, WHEREIN FACT OF RIGHT ISSUE AND CAPACITY EXPANSION WAS STATED. ACCORDINGLY, HE CONTENDED THAT ASSESSEES CLAIM WAS LIABLE TO BE ALLOWED ON BOTH SCORES. 15. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF REVENUE AUTHORITIES FOR THE REASON THAT IT WAS NOT A CASE OF LONG TERM BORROWING AND EXPENSES INCURRED IN THE YEAR UNDER CONSIDERATION PERTAINED TO WORKING CAPITAL L OANS AND NOT EXPANSION. 16. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 17. AT THE VERY OUT-SET, IT IS NOTED THAT THE A.O. HAS REJECTED THE CLAIM OF ASSESSEE U/S 35-D FOR ADDITIONAL AMOUNT OF RS. 6,89,501/- ON THE GROUND THAT THE TOTAL SHARE ISSUE EXPENSES HAD ALRE ADY BEEN QUANTIFIED IN ASSESSMENT YEAR 1992-93 FOR THE REASON THAT THE PRO VISIONS OF SECTION 35- D ITSELF PROVIDE THAT IF AN ASSESSEE INCURS PRELIMI NARY EXPENSES OF THE NATURE SPECIFIED THEREIN, IN CONNECTION WITH EXTENS ION OR DIVERSIFICATION OF PAGE 20 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED ASSESSEES BUSINESS, THEN, AS PER THE PROVISIONS OF SECTION 35-D(1)(II), THE ASSESSEE SHALL BE ENTITLED FOR WRITE OFF OF SUCH EX PENSES PROVIDED OTHER CONDITIONS SPECIFIED IN THAT SECTION ARE SATISFIED. AS REGARDS TO THE SATISFACTION OF THIS CONDITION, IT IS NOTED THAT IN THE DIRECTORS REPORT AT THE BACK OF PAGE 92 OF THE PAPER BOOK, IT IS MENTIONED THAT THE COMPANY PRIVATELY PLACED SHARES OF RS. 10/- EACH AT THE PRE MIUM OF RS. 60/-. THE FACT OF EXPANSION/BIFURCATION BY THE ASSESSEE COMPA NY IS ALSO MENTIONED THEREIN. THUS, CONDITIONS OF SECTION 35-D(1) ARE SA TISFIED. WE HOLD THAT THE ASSESSEE IS ENTITLED FOR WRITE OFF OF PRELIMINA RY EXPENSES INCURRED BY IT IN THIS YEAR. THE SECOND ISSUE IS REGARDING COMPUTA TION OF CAPITAL EMPLOYED TO WORK OUT ELIGIBLE AMOUNT, WHICH COULD B E WRITTEN OFF U/S 35- D OF THE ACT. IN THIS REGARD, IT IS NOTED THAT IN T HE ASSESSMENT YEAR 1992- 93, WHEN THIS ISSUE WAS DECIDED BY THE TRIBUNAL AGA INST THE ASSESSEE, THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF DY. CIT VS. CORE HEALTH CARE LIMITED AS REPORTED IN 308 ITR 263 , HAD NOT BEEN PRONOUNCED, THOUGH THE MATTER HAD BEEN UNDER CONSID ERATION OF THE HON'BLE GUJARAT HIGH COURT. NOW, THIS DECISION HAS BEEN PRONOUNCED AND THE RELEVANT FINDINGS ARE AS UNDER :- UNDER THE EXPLANATION, CLAUSE (A) DEFINES COST OF PROJECT, CLAUSE (B) DEFINES CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY, AND CLAUSE (C) DEFINES LONG-TERM BORROWING S. IN PAGE 21 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED CASE OF THE ASSESSEE THE FACTOR OF COST OF PROJECT IS NOT RELEVANT AND ONLY CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY IS REQUIRED TO BE CONSIDERED, THAT ALSO AS DEFINED IN SUB-CLAUSE(II) OF CLAUSE (B) OF THE EXPLANATION WHICH TALKS OF AGGREGATE OF ISSUED SHARE CAPITAL, DEBENTU RES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREV IOUS YEAR. LONG-TERM BORROWINGS MEANS UNDER SUB-CLAUSE (I) OF CLAUSE (C) OF THE EXPLANATION ANY MONEY BORROWED BY THE COMPANY FROM GOVERNMENT, OR THE INDUSTRIAL FIN ANCE CORPORATION OF INDIA OR THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA OR ANY OTHER FINANC IAL INSTITUTION, WHICH IS FOR THE TIME BEING APPROVED B Y THE CENTRAL GOVERNMENT OR ANY BANKING INSTITUTION. THER EFORE, ON A PLAIN READING IT BECOMES APPARENT THAT THE BOR ROWING HAS TO BE FROM ANY OF THE FOUR ENTITIES MENTIONED I N SUB- CLAUSE (I) OF CLAUSE (C) OF THE EXPLANATION. NO TIM E LIMIT FOR THE PURPOSE OF BORROWING IS LAID DOWN IN THE PROVIS ION. THIS ASSUMES SIGNIFICANCE WHEN ONE COMPARES THE SAM E WITH SUB-CLAUSE (II) OF CLAUSE (C) OF THE EXPLANATI ON WHEREIN IT IS SPECIFIED THAT IT SHOULD BE A PERIOD OF NOT LESS THAN SEVEN YEARS. THUS, ONCE IT IS ESTABLISHED THAT THE PAGE 22 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED BORROWING IS FROM ANY ONE OF THE FOUR ENTITIES AS SPECIFIED, THE SAME WOULD BE TREATED AS LONG-TERM BORROWINGS F OR THE PURPOSE OF WORKING OUT THE AGGREGATE OF CAPITAL EMP LOYED IN THE BUSINESS OF THE COMPANY. IN THE PRESENT CASE , AS FOUND BY THE COMMISSIONER (APPEALS) AND THE TRIBUN AL HAVE RIGHTLY COME TO, THE CONCLUSION THAT THE AMOUN T IN QUESTION WAS REQUIRED TO BE INCLUDED FOR THE PURPOS E OF CAPITAL EMPLOYED IN THE BUSINESS AND THE DIRECTION TO RECOMPUTED THE DEDUCTION U/S 35-D OF THE ACT WAS PE RFECTLY JUSTIFIED. 18. WE ARE FURTHER OF THE VIEW THAT IN THE PRESENT CAS E, IT IS NOT IN DISPUTE THAT WORKING CAPITAL HAS BEEN TAKEN FROM TH E BANKING INSTITUTION AND THOUGH THE NOMENCLATURE AND ACTUAL NATURE IS OF WORKING CAPITAL, BUT IN REAL BUSINESS SITUATION, SUCH WORKING CAPITAL FA CILITIES ARE CONTINUOUSLY ENJOYED BY THE ASSESSEE AND IN THE PRESENT CASE ALS O, IT IS NOT IN DISPUTE THAT, AT ANY POINT OF TIME, SUCH FACILITIES WERE RE VOKED BY THE BANKING INSTITUTION. THUS, FOR ALL PRACTICAL PURPOSES, THES E ARE OF THE NATURE OF LONG TERM FINANCE AVAILABLE TO A BUSINESS CONCERN DEPEND ING UPON THE LEVEL OF ITS OPERATION AND EXPENDITURE OF PRIMARY/COLLATERAL SECURITIES PROVIDED TO THE BANKING INSTITUTION. ACCORDINGLY, THIS ASPECT O F THE ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. HAVING STATED SO , WE ARE OF THE VIEW PAGE 23 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED THAT SINCE COMPOSITION OF EXPENDITURE AND ELIGIBILI TY THEREOF IN TERMS OF PROVISIONS OF SECTION 35D(2) AND IN PARTICULAR OF S ECTION 35D(2)(C)(IV), AS IT APPEARS TO BE A CASE OF PRIVATE PLACEMENT OF SHARES AND NOT OF PUBLIC SUBSCRIPTION OF SHARES, HAVE NOT BEEN EXAMINED. HEN CE, WE RESTORE THIS ISSUE TO THE FILE OF A.O. FOR EXAMINATION OF THESE ASPECTS AND DECISION THEREON AS PER LAW. IT IS NEEDLESS TO MENTION THAT THE A.O. SHALL GRANT AN ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE IN DOING SO. THUS, GROUND NO. 2 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED IN TERMS INDICATED ABOVE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN I.T.A.NO. 251/IND/2001, IS PARTLY ALLOWED. 20. NOW, WE SHALL TAKE UP THE ASSESSEES APPEAL IN I.T. A.NO. 252/IND/2001, WHEREIN BOTH THE ISSUES ARE IDENTICAL TO THE ISSUES RAISED IN I.T.A.NO. 251/IND/2001, DECIDED HEREINABOVE. HENCE, FOLLOWING THE SAME REASONS, WE ALLOW BOTH THIS GROUNDS OF THE ASSESSEE . 21. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS ALSO PARTLY ALLOWED. 22. TO SUM UP, BOTH THE APPEALS FILED BY THE ASSESSEE S TAND PARTLY ALLOWED. PAGE 24 OF 24 I.T.A.NOS. 251 & 252/IND/2001 MARAL OVERSEAS LIMITED THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH NOVEMBER, 2009. CPU* 1719D20