1. This appeal by the assessee is directed against the order of the Commissioner (Appeals), who upheld the disallowance of Rs. 5 lakhs made by the ITO being contribution made by the assessee-company for construction of a stadium.
2. The assessee-company carries on business in manufacture of papers.
It took lease of bamboo forest from the Government of Orissa at Dhenkanal and about 90 per cent of raw material was obtained by the assessee-company from this forest. The district magistrate and the President of the District Athletic Association, Dhenkanal, wrote a letter dated 22-7-1976 to the assessee-company mentioning that the District Athletic Association is an organisation entrusted with the responsibility of promoting sports and athletic activities in the district and for this purpose it has been decided to construct a stadium at Dhenkanal. He also wrote that the company has been operating in the district for the last half century and, therefore, it is natural to expect that they would play a significant role in the development of the district by making a generous contribution towards the building of the stadium for promotion of sports and athletic activities in the entire district. This letter of the district magistrate was considered by the board of directors of the assessee-company and in their meeting held on 20-7-1976 it was decided, in view of the long standing connection of the company with the State of Orissa, to contribute Rs. 5 lakhs for the welfare activity of this nature particularly as quite a number of their employees who came from this district will participate in the games and sports for which the stadium was being constructed.
The assessee, therefore, contributed a sum of Rs. 5 lakhs for the construction of the stadium. The assessee claimed this amount as an admissible deduction in computing its income for the year under consideration. The ITO disallowed this claim of the assessee as he was of the opinion that the expenditure was not directly related to the business of the assessee-company.
3. The assessee appealed to the Commissioner (Appeals) and it was contended on behalf of the assessee that the company had taken on lease bamboo forests from the Government of Orissa in Dhenkanal and bulk of bamboos which constituted the raw materials for the mills came from these forests. It was next contended that the employees recruited had to work in these hilly forests, and, therefore, the company's interest in the area and concern for its employees engaged there was enormous.
It was pointed out that the district magistrate by his letter dated 22-7-1976 approached the company for contribution for construction of a stadium in that area and because of its business interest in that area the company considered it commercially expedient to make a contribution of Rs. 5 lakhs. It was further pointed out that the company took into account the fact that more than 300 employees would be able to take part in the games and sports to be organised in the said stadium. A reference was made to the resolution of the board of directors passed in the meeting held on 20-7-1976 wherein it was decided to contribute a sum of Rs. 5 lakhs for the stadium. It was, therefore, claimed that the amount in question was an admissible deduction in view of the following decisions : Eastern Investments Ltd. v. CIT  20 ITR 1 (SC), CIT v. Malayalam Plantations Ltd.  53 ITR 140 (SC), Sree Meenakshi Mills Ltd. v. CIT  63 ITR 207 (SC), CIT v. Delhi Cloth & General Mills Co. Ltd.  115 ITR 659 (Delhi), Hindusthan Klockner Switchgear Ltd. v. CIT  81 ITR 20 (Bom.) and Shahzada Nand & Sons v. CIT  108 ITR 358 (SC).
The Commissioner (Appeals) was of the opinion that the purpose of constructing a stadium by the District Athletic Association, Dhenkanal was to promote the sports and athletic activities in the district which was a public purpose. He found that the stadium was not constructed exclusively for the benefit of the assessee-company but was for the general welfare of the community at large and the employees of the assessee-company would be benefited only because they happened to be the members of the general public in that area and not because they are the employees of the assessee-company. The Commissioner (Appeals) was, therefore, of the opinion that the construction of stadium was not wholly and exclusively for the purpose of the company's business in view of the decision of the Supreme Court in the case of Travancore Titanium Products Ltd. v. CIT  60 ITR 277 and in the case of Indian Aluminium Co. Ltd. v. CIT  84 ITR 735. Then again the Commissioner (Appeals) observed that the stadium being capital asset even though the same did not belong to the assessee-company, the lump sum contribution made by it towards the cost of construction will result into an enduring advantage and, therefore, the expenditure would be a capital expenditure not deductible under Section 37 of the Income-tax Act, 1961, in view of the decision of the Calcutta High Court in the case of CIT v. India Tobacco Co. Ltd.  114 ITR 182 and of the Allahabad High Court in the case of Sam Smelting & Refining Corporation (P.) Ltd. v. CIT  116 ITR 766. Viewed thus, the Commissioner (Appeals) upheld the disallowance of Rs. 5 lakhs made by the ITO.4. Against the aforesaid order of the Commissioner (Appeals), the assessee has preferred the present appeal before us. It was contended by the learned counsel for the assessee that to maintain better relationship with the Government of Orissa, it was necessary for the assessee to contribute Rs. 5 lakhs for constructing the stadium in question. He urged that since the assessee-company was exploiting the natural resources of the Orissa State Government, to maintain good relationship with the Government, the assessee had to incur this expenditure. He, therefore, claimed that the Commissioner (Appeals) was not justified in holding that there was no nexus between the expenditure incurred by the assessee and the business carried on by it, in view of the decisions relied on before the Commissioner (Appeals) and mentioned in his order. The learned counsel for the assessee urged that business expediency may not require that all expenses be incurred for earning immediate profit and that it was not necessary that the primary motive in incurring the expenditure must be directly to earn income thereby. He submitted that expenditure even though not directly related to the earning of income may still be admissible as deduction.
In other words, he urged that the business expenditure should be such as to render it reasonable to expect a benefit to the business or to facilitate the carrying on of the business. He also urged that even if the payment or the expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may enure to the benefit of a third party. He urged that the Commissioner (Appeals) was wrong in holding that the expenditure in question was in the nature of capital expenditure inasmuch as the stadium so constructed did not belong to the assessee-company. He submitted that the facts of the case clearly went to suggest that no advantage of enduring nature in the capital field was acquired by the assessee in making contribution towards construction of the stadium. Reliance was placed on the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v.CIT  124 ITR 1. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. Ashok Leyland Ltd.  86 ITR 549 wherein it was observed by their Lordships that : ...It is true that by terminating the services of the managing agents, the company not only saved the expense that it would have had to incur in the relevant previous year but also for few more years to come. It will not be correct to say that by avoiding certain business expenditure, the company can be said to have acquired enduring benefits or acquired any income yielding asset.
(p. 554) In short, the learned counsel for the assessee contended that if the advantage consists merely of facilitating the assessee's trading business operations or enabling the management to conduct the assessee's business to be carried on more efficiently or more profitably, leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future.
5. The learned departmental representative, on the other hand, highlighted the reasons given by the Commissioner (Appeals) for coming to the conclusion that the claim of the assessee for deduction of Rs. 5 lakhs was not admissible. He relied on the decision of the Calcutta High Court in the case of India Tobacco Co. Ltd. (supra), where the assessee-company contributed a sum of Rs. 50,000 for purchase of equipments for hospital. By payment of the amount "the employees of the assessee, who were not covered by the ESI Scheme, became entitled to the use of the hospital facilities. In the background of the aforesaid facts, it was held by the Calcutta High Court in that case that the expendit re was capital in nature and not admissible for deduction under Section 37. The learned departmental representative, therefore, submitted that the order of the Commissioner (Appeals) requires no change.
6. We have heard the submissions of both the parties and considered the facts of the case. The claim of the assessee was disallowed by the lower authorities patently on the two grounds : firstly, the expenditure in question was not wholly and exclusively for the purpose of the assessee's business; and secondly, the said expenditure was in the nature of capital. It was not in dispute that the stadium was constructed at the instance of the Orissa Government for the general welfare of the community at large and the employees of the assessee-company were to be benefited thereby as they happened to be the members of the general public. It was also not in dispute that the assessee-company has been operating in Dhenkanal District of Orissa for the last half century and exploiting the natural resources of that area for the purpose of its paper manufacturing business. Therefore, it can be legitimately presumed that the assessee was to play a significant role in the general welfare of the area where it was exploiting the natural resources for its own business. In order that an expenditure may be allowed as deduction under Section 37, it need not have to [be] incurred] with the object of gaining a direct and immediate benefit. It would suffice if it was incurred in order, [directly or] indirectly, to facilitate the carrying on of the business. The section also provides various norms for deduction of expenditure if the same is found to have been incurred for commercial expediency. The term 'commercial expediency' means everything that serves to promote commerce and includes every means suitable to that end. As has been held by the Supreme Court in the case of CIT v. Delhi Safe Deposit Co. Ltd.  133 ITR 756. an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his business. Bearing this principle in mind and considering the facts of the case, we are of the opinion that the expenditure that was incurred by the assessee for the construction of the stadium was for the purpose of commercial expediency and, therefore, this was an admissible deduction in computing the income of the assessee.
However, for deduction to be allowed under Section 37 it is necessary, that such expenditure should not be capital in character. Admittedly, the stadium is a capital asset even though the same did not belong to the assessee. The lump sum contribution made by the assessee for the construction of the stadium formed part of the expenditure that was incurred, which is (sic) a capital- asset. The employees of the assessee-company being members of the local general public would have the opportunity of obtaining the advantage or benefit of enduring nature by using the stadium.
In the case of India Tobacco Co. Ltd. (supra), the assessee contributed a sum of Rs. 50,000 for purchase of equipments for hospital in which the employees of the assessee, not covered by the ESI scheme, became entitled to use the hospital facility. In that case, the Calcutta High Court held that the assessee acquired an asset of enduring nature by payment of Rs. 50,000. Again, in the case of Sam Smelting & Refining Corporation (P.) Ltd. (supra), the assessee spent a sum of Rs. 17,440 for erecting a gate and installing a statue of late Jugmandar Dass Jain, who was the founder-director of the assessee-company. The garden where the statue was installed belonged to the Cantonment Board, Meerut Cantt. They claimed the amount as a deductible revenue expenditure. It was held by the Tribunal that even if it is presumed that the erection of the statue was made for the business needs of the assessee, by making the gate in the garden and installing a statue in the garden, the assessee sought to gain an advantage of an enduring nature and when the expenditure is incurred for bringing into existence an advantage of enduring nature, such expenditure is certainly referable to expenditure on capital account. In appeal, at the instance of the assessee, the Allahabad High Court upheld the viewpoint of the Tribunal.
Thus, following the principle laid down in the aforesaid cases, we are of the opinion that the expenditure that was incurred by the assessee before us for the construction of the stadium was of capital nature and, therefore, it has to be held that the lower authorities were justified in disallowing the assessee's claim for deduction of Rs. 5 lakhs as revenue expenditure. In this view of the matter, we uphold the order of the Commissioner (Appeals) on this point, as indicated above.