1. These two appeals of the assessee relate to two assessment years 1976-77 and 1977-78. The assessee is a fully owned State Government undertaking, engaged in the business of road transport. The assessee contributed Rs. 1,48,000 for the assessment year 1976-77 and Rs. 7,500 (inclusive of flag day fund) for the subsequent assessment year 1977-78 to the Tamil Nadu Chief Minister's Drought Relief Fund. The ITO with whom the Commissioner (Appeals) agreed, disallowed it as a deduction under Section 37 of the income-tax Act, 1961. It would appear as seen from the appellate order that the assessee was given Section 80G relief. The assessee appealed to the Tribunal for deduction under Section 37 of the contribution to the Chief Minister's Drought Relief Fund.
2. It is seen from the appellate order for the assessment year 1976-77 that a copy of a circular issued by the Government of Tamil Nadu suggesting that each transport operator might make contribution of Rs. 1,000 per bus to the Drought Relief Fund and that was produced before the Commissioner (Appeals) and that the assessee had 148 buses in the fleet and, therefore, it paid an amount of Rs. 1,48,000. But the basis for such contribution for the subsequent assessment year 1977-78 is not made clear to us. However, that is not very material to decide the appeal. The assessee cited Addl. CIT v. Kuber Singh Bhagwandas  118 ITR 379 (MP)(FB) in support of his stand of commercial expediency.
But there the assessee is a private enterprise and not a Government undertaking in the public sector, like the one before us. So that decision is distinguishable on that ground and on the basis of certain other facts about nexus between expenditure and the business activity, which are present there and absent in this case". What we find is that while in matters like this the assessee in a private enterprise can justify these types of expenditure as a business expenditure, wholly and exclusively laid out for the business purpose under the cover and shelter of commercial expediency, it is not possible or permissible for fully Government owned public sector undertaking to so justify it under commercial expediency. Private traders would always desire to cultivate smooth relationship with the Government machinery and will not like to antagonise or incur displeasure by non-co-operation from contributing to such funds sponsored by the Government. They generally believe that only with such co-operation they will be able to carry on their trade smoothly and profitably. But that is not the case with fully owned Government undertaking. They need not and should not entertain any such ideas like the private trade. They are, though a trading concern, really the government itself. Their activity of road transport is only another form of governmental activity. The executive official who sponsored the fund may very likely be the Chairman of the undertaking the next day. So what is applicable to private trade is not always applicable to the public sector.
The main and the only argument of the assessee was that in matters like this, the Government ordinarily shows no distinction between private trade and public sector and that, therefore, the commercial expediency is the same for all ; whether private trade or public sector. We cannot agree. Nor can we encourage that doctrine. It is to ward off many of such evils that public sector is asked to step into the trade. There cannot be any difference between the Government in its executive wing and the Government in its trading wing. Both are activities of the same Government. So this expenditure incurred by a public sector undertaking is not incurred wholly and exclusively for the purpose of business. If the assessee were in the private trade, very likely we would have allowed the expenditure under commercial expediency. But that does not exist for a public sector undertaking. These contributions made by a public sector undertaking as a trading concern do not contribute either to the benefit or the non-contribution or non-co-operation to the detriment of the business of the assessee. But similar contributions by private trade may very likely be to the benefit of the business and non-contribution and non-co-operation to its detriment. That is the distinction we make between the private trade and public sector undertaking, to which class this assessee belongs. We agree in full with the reasonings and conclusions of the income-tax authorities.