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Ambala Bus Syndicate Private Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 13 of 1973
Judge
Reported in[1974]95ITR383(P& H)
ActsIncome Tax Act, 1961 - Sections 37
AppellantAmbala Bus Syndicate Private Ltd.
RespondentCommissioner of Income-tax
Appellant Advocate N.K. Sodhi, Adv.
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredDelhi Cloth and General Mills Co. Ltd. v. Commissioner
Excerpt:
.....the said order. - 12748-iht-69, dated 19th november, 1969, transport department, published in the punjab gazette (extraordinary), dated november 19, 1969. the relevant clauses of the notification are 2, 3, 4 and 6 arid are quoted below :2. (a) all further operations on the existing local routes not exceeding twelve miles in length in the punjab territories as well as on monoply routes, namely, jullundur-amritsar and ferozepore-fazilka, shall be undertaken exclusively by the punjab roadways. ' 5. and their lordships of the delhi high court held as under :that the expenditure was not allowable as a deduction because the assessee failed to show the link between its business and the contribution made to the congress party......money to meet the expenditure of the propaganda, it cannot be said that ' the carrying on of vanaspati business was not hampered at all by any order of the government'. it is true that the government had not passed any order but if the bill had been allowed to become a law the threat would have been real. as there was lot of agitation in favour of the bill, it was circulated for eliciting public opinion and it transpired that one of the ways was not to impose a total ban on the manufacture of vanaspati ghee but also to make a provision for compulsory colourisation of vanaspati that would have impaired the trade, although there would have been no complete ban on its manufacture and sale. in order to preserve the status and reputation of vanaspati ghee industry if propaganda had to.....
Judgment:

1. This order will dispose of Income-tax References Nos. 13and 14 of 1973. They pertain to the assessment years 1969-70 and 1970-71, respectively. The question which is referred for our opinion is the same and may now be stated:

' Whether, on the facts and in the circumstances of the case, the contributions by the assessee to the political parties through the Punjab Motor Union, Chandigarh, were allowable under Section 37 '

2. It will appear from the frame of the question that it is admitted that there were contributions by the assessee to the political parties through the Punjab Motor Union, Chandigarh, and the only question is whether they were allowable deductions.

3. The assessee is a transport company. Its route permits were to expire on June 30, 1969. There was a threat of complete nationalisation of the transport business and in this connection reference may be made to the Notification No. 12748-IHT-69, dated 19th November, 1969, Transport Department, published in the Punjab Gazette (Extraordinary), dated November 19, 1969. The relevant clauses of the notification are 2, 3, 4 and 6 arid are quoted below :

' 2. (a) All further operations on the existing local routes not exceeding twelve miles in length in the Punjab territories as well as on monoply routes, namely, Jullundur-Amritsar and Ferozepore-Fazilka, shall be undertaken exclusively by the Punjab Roadways.

(b) Sixty percent, of the operations on the new local routes not exceeding ten miles in length in the Punjab territories shall be undertaken by the Punjab Roadways and the remaining forty per cent. by the existing private operators and new entrants in the ratio of thirty to ten, respectively.

3. Sixty per cent. of the overall operations that are being undertaken on or immediately before 30th June, 1959, on the routes specified in annexure ' A ' shall be undertaken by the Punjab Roadways.

4. All operations on new routes or on account of increase in traffic on the existing routes specified in annexure ' A' shall be undertaken as under :

(i) Sixty per cent. ot the operations :--

(a) on existing and new intra-State routes ;

(b) on such routes as were intra-State immediately before the appointed day but have become inter-State on the appointee day as a result of the reorganisation of the State of Punjab ; and

(c) accruing to the Punjab territories on inter-regional routes ; shall be undertaken by the Punjab Roadways.

(ii) Further operations on inter-State routes (whether existing or new) other than those specified in (i)(b) above, shall be undertaken by the Punjab Roadways exclusively.

6. The provisions of this scheme shall have effect for a period of seven years from the date of publication of this notification in the Official Gazette, whereafter one-third of the operations of the private operators shall be taken over by the Punjab Roadways each year.'

4. In the face of this, the transporters formed a common forum to prevent nationalisation. This forum was styled as the Punjab Motor Union. According to the assessee, all the transporters contributed funds to that forum and that forum donated the money so collected to different political parties. It is stated by the assessee that these parties exercised their weight with the Government and ultimately the total nationalisation was prevented. The assessee got an extension of seven years for its route permits. The assessee had paid a sum of Rs. 10,000 to the Punjab Motor Union and it claimed it as revenue expenditure. This claim was not allowed by the Income-tax Officer and by the Appellate Assistant Commissioner on appeal. Even the Income-tax Appellate Tribunal rejected the assessee's claim in a further appeal. The Tribunal, while dealing with this matter, observed as follows:

' We have given our careful thought to the contentions of both the sides and we are of the view that the assessee has no case. The assessee does not know the details of the donations to the political parties. He only gave the amounts to the Punjab Motor Union and beyond that he is not aware as to what happened and as to to whom the donations were made. It is correct that the assessee obtained an extension of transport route permit, but that itself cannot be a link directly with the donations to the political parties whose names the assessee does not know. It is for the assessee to establish a nexus between the donations to the political parties and the benefit which the assessee's business received by way of such donations. In the absence of any nexus so established, the assessee cannot have its claim. For this we rely on -the judgment of their Lordships of the Delhi High Court in Orissa Cement Ltd. v. Commissioner of Income-tax, [1969] 73 I.T.R. 14 (Delhi) wherein the case before their 'Lordships of the Allahabad High Court in J. K. Cotton Spg. & Wvg. Mills Co. Ltd. v. Commissioner of Income-tax, [1966] 62 I.T.R. 813 (All.). was also considered. In Orissa Cement Ltd. v. Commissioner of Income-tax, the facts were as follows : ' The assessee claimed deduction of Rs. one lakh contributed to the Congress party as an expenditure laid out wholly and exclusively for the purposes of its business claiming (i) that its factory was situated at a place far away from Calcutta and other places and the supply of coal, packingbags and cement entailed problems which were solved by the Government ruled by the Congress party and (ii) that the Government had given to the assessee an interest free loan of Rs. 50 lakhs and had also subscribed for Rs. 40 lakhs worth of preference capital in the company and had also agreed to buy the entire cement for the Hirakud Dam and since the Congress party was the ruling party, the payment was motivated by commercial considerations.'

5. And their Lordships of the Delhi High Court held as under :

'That the expenditure was not allowable as a deduction because the assessee failed to show the link between its business and the contribution made to the Congress party.

An expense incurred voluntarily but wholly and exclusively for the expender's trade may, in given circumstances, be a permissible deduction even though it enures to sonic extent to a third party's benefit. Similarly, payments for political purposes may be for the purpose of the trade. In all such cases a link between the trade and the payment has to be established, ... Before an expense can be allowed under Section 10(2)(xv) it must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. Only such expenditure can be allowed which is really incidental to the trade itself. An expenditure remotely connected with the trade does not qualify for permissible deduction.

We, therefore, see no merit in the assessee's case and dismiss both the appeals.'

6. The assessee then moved the Income-tax Appellate Tribunal under Section 256(1) for a reference of the question of law already stated for the opinion of this court.

7. After going through the order of the Tribunal, the analysis of it only comes to this, that the claim has been disallowed on the ground that the money collected by the Motor Union is not shown as to how it had been expended. Beyond this all other material facts bearing on the matter have been accepted by the Tribunal. These facts we have already set out earlier. The further fact is also there that the assessee was granted extension for a period of seven years after the expiry of the route permits on 30th June, 1969. Thus, there is a clear connection between the contribution and the business of the assessee because it got over the notification that was issued on 19th November, 1969. On these facts, the only irresistible conclusion is that the expenditure was wholly incurred to save the business from annihilation. The view we have taken finds ample support from the decision of the Delhi High Court in Delhi Cloth and General Mills Co. Ltd. v. Commissioner oj Income-tax, [1972] 85 I.T.R. 261, 266, 270 (Delhi).

8. Hardy J., who spoke for the court, observed as follows :

'In the present case, a member of the Constituent Assembly of India had introduced a Bill in the Legislative part of the said Assembly to provide for prohibition of manufacture and import of hydrogenated vegetable oils. The Bill itself was to be called the Prohibition of Manufacture and Import of Hydrogenated Vegetable Oils Act, 1949. The object of the Bill was to prohibit the manufacture and import of hydrogenated vegetable oils popularly known as vanaspati ghee. Section 3 provided that it was expedient in the public interest that the manufacture and import into the Indian Union of hydrogenated vegetable oils, popularly known as vanaspati ghee, be prohibited. The Bill itself was, therefore, for complete prohibition of manfacture and import of vanaspati ghee. If the Bill had been passed the vanaspati industry would have been completely closed. The propaganda compaign was therefore, started by an Association of Vanaspati Manufacturers at Bombay. The petitioner being a manufacturer of vanaspati ghee was a member of that association. So, even on the Tribunal's own reasoning, there was a threat for the winding up of the petitioner's business. If the petitioner, therefore, contributed money to meet the expenditure of the propaganda, it cannot be said that ' the carrying on of vanaspati business was not hampered at all by any order of the Government'. It is true that the Government had not passed any order but if the Bill had been allowed to become a law the threat would have been real. As there was lot of agitation in favour of the Bill, it was circulated for eliciting public opinion and it transpired that one of the ways was not to impose a total ban on the manufacture of vanaspati ghee but also to make a provision for compulsory colourisation of vanaspati That would have impaired the trade, although there would have been no complete ban on its manufacture and sale. In order to preserve the status and reputation of vanaspati ghee industry if propaganda had to be carried on it cannot be said that the expenditure of money was not exclusively laid out for the business of the company....

In the present case, there can be no doubt that the expenditure on propaganda was incurred by the assessee-company not only with a view to the direct and immediate benefit for purposes of commercial expediency but also indirectly to facilitate the carrying on of the business. Such expenditure can, in the words of the Supreme Court, be obviously said to have been laid out wholly and exclusively for the purposes of the trade.'

9. The contention of the learned counsel for the revenue is that it is a question of fact whether the amount in question was expended wholly or exclusively for the purpose of saving the business from annihilation. His contention is that it is not known how the amount was spent or whether it was expended at all. However, the fact remains that the money was contributed and the notification never achieved its logical end. On thecontrary, the assessee got a new lease of life. Therefore, it can safely be concluded that the money was spent to get over the notification, particularly when no other fact has been brought on the record to show that something else intervened to make the Government change its decision.

10. For the reasons recorded above, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. There will be no order as to costs.


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