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British Electrical and Pumps (P.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 288 of 1969
Judge
Reported in80CWN234,[1977]106ITR620(Cal)
ActsIncome Tax Act, 1961 - Section 37 and 37(1); ;Income Tax Act, 1922 - Section 10(2)
AppellantBritish Electrical and Pumps (P.) Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal and ;A. Roy Chowdhury, Advs.
Respondent AdvocateAjit Sengupta and ;P. Majumdar, Advs.
Cases ReferredIndian Steel & Wire Products Ltd. v. Commissioner of Income
Excerpt:
- .....are as follows : those expenditures were laid out or expended wholly and exclusively for the purpose of business of the assessee ; the tribunal had no material before it for holding that the primary and dominant motive of the assessee was to make charity to those organisations and by merely looking at the names and the amounts paid to those organisations no such conclusion could be reached by the tribunal; in any event, the tribunal erred in going into the motive of the assessee, for it has found that there was an element of advertisement and, therefore, it should have allowed those deductions in view of the law laid down by the supreme court in the case of sree meenakshi mills ltd. v. commissioner of income-tax : [1967]63itr207(sc) , in the following terms: 'under section.....
Judgment:

DEB, J.

1. In this reference, under Section 256(2) of the Income-tax Act, 1961, we are concerned with the following question of law :

'Whether, on the facts and in the circumstances of the case, the Tribunal had any material before it to hold that the amount of Rs. 5,750 paid by the company to various parties for advertisement of the company through the souvenirs published by the respective parties were not laid out or expended wholly and exclusively for the purposes of the business ?'

2. The reference relates to the assessment year 1965-66. The previous year ends on March 31, 1964. The assessee is a manufacturer and seller of electrical pumps and motors. In the assessment year, the assessee advertised its products in souvenirs published by various organisations and institutions and claimed deductions of the sums paid to those organisations and institutions as charged by them for inserting those advertisements.

3. The Income-tax Officer disallowed the claim of the assessee. On first appeal, a sum of Rs. 745 was only allowed by the Appellate Assistant Commissioner who rejected the rest of the claim by holding that the primary and dominant motive of the assessee in publishing the advertisements in the souvenirs of the American Women's Club Welfare Fund, Indian National Trade Union Congress, West Bengal Pradesh Congress Committee, Moral Rearmament, 24-Parganas Zill Sanskriti Parishad, Rabindra Palli Sarbajonin Durgotsab Committee, Baranagar, Bharatiya Sanskriti Bhawan and Loireto House was to make charity to those organisations and institutions.

4. The Tribunal, on second appeal, partly allowed the claim of the assessee, but disallowed, under Section 37(1) of the Income-tax Act, 1961, the sums paid to the American Women's Club Welfare Fund, Bharatiya Sanskriti Bhawan, West Bengal Pradesh Congress Committee and Moral Rearmament by affirming the decision of the Appellate Assistant Commissioner and thereafter the Tribunal rectified certain mistakes in its order under Section 35 of the Act.

5. At the time of hearing of the appeal the Tribunal wanted to see those souvenirs for the purpose of ascertaining the nature of the advertisements published in those sovenirs and to satisfy itself as to whether those souvenirs could reach the hands of an adequate number of persons with whom the assessee intended to establish business relationship through the media of those advertisements, but unfortunately those souvenirs could not be produced by the assessee as recorded by the Tribunal. The Tribunal found, as a fact, that there was an element of advertisement in all those insertions but disallowed the amounts paid to those organisations in the following terms :

'Looking into the nature of the organisation or institution concerned and the amount of payment we see that in some of the cases that will be mentioned shortly the primary and dominant motive for the payment was charity and the payments were not out of considerations of business.'

6. It is to be noticed here that the Tribunal allowed, amongst other claims, Rs. 250 paid to the Indian National Trade Union Congress, Rs. 50 paid to Rabindra Palli Sarbajanin Dargotsab Committee, Baranagar, and Rs. 100 to Loretto House, but disallowed Rs. 250 paid to the American Women's Club Welfare Fund, Rs 1,000 paid to Bharatiya Sanskriti Bhawan, two sums of Rs. 1,000 and Rs. 1,000 paid to the West Bengal Pradesh Congress Committee and Rs. 1,000 paid to Moral Rearmament by the assessee.

7. It is an admitted fact that the assessee has actually paid those sums to those organisations and the genuineness of those payments has not been questioned by the revenue. It has been found by the Tribunal, as a fact, that there was an element of advertisement in making those insertions in those souvenirs and those advertisements were in fact published by those organisations.

8. The submissions made before us by Dr. Pal, the learned counsel for the assessee, are as follows : those expenditures were laid out or expended wholly and exclusively for the purpose of business of the assessee ; the Tribunal had no material before it for holding that the primary and dominant motive of the assessee was to make charity to those organisations and by merely looking at the names and the amounts paid to those organisations no such conclusion could be reached by the Tribunal; in any event, the Tribunal erred in going into the motive of the assessee, for it has found that there was an element of advertisement and, therefore, it should have allowed those deductions in view of the law laid down by the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax : [1967]63ITR207(SC) , in the following terms:

'Under Section 10(2)(xv) of the Indian Income-tax Act as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction ...... Expenditure incurred not with a view to the direct and immediate benefit for purposes of commercial expediency and in order indirectly to facilitate the carrying on of the business is, therefore, expenditure laid out wholly and exclusively for the purposes of the trade.........

The High Court also thought that expenditure to fall within the terms of Section 10(2)(xv), must be one for the purpose of earning income, and there was no material on the record to show that the expenditure was so incurred. If it is intended thereby to imply that the primary motive in incurring the expenditure admissible to deduction under Section 10(2)(xv)must be directly to earn income thereby, we are with respect unable to agree with that view.'

9. Dr. Pal also cited the case of Commissioner of Income-tax v. Chandulal Keshavlal & Co. : [1960]38ITR601(SC) , in support of his contention that since genuineness of those payments has not been questioned nor any improper or oblique motive has been suggested by the revenue it must be held that those expenses were incurred solely and exclusively for the purpose of the trade of the assessee and it does not matter in the least that those organisations might have been indirectly benefited by those payments. He also placed strong reliance on the well-known observation of Viscount Cave L.C. in the case of Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155 , which has been quoted with approval by the Supreme Court in the case of Commissioner of Income-tax v. Chandulal Keshavlal & Co. : [1960]38ITR601(SC) .

10. Mr. Sengupta, the learned counsel for the revenue, on the other hand, by drawing our attention to the conclusion of the Tribunal to the effect that 'the primary and dominant motive for the payment was charity and the payments were not out of considerations of business' has submitted before us that these findings are binding on us and, therefore, the question must be answered against the assessee. His other contentions are as follows : The assessee did not produce any material to satisfy the Tribunal that those souvenirs reach the hands of an adequate number of people with whom the assessee intended to do business and, therefore, the Tribunal was right in holding that the primary and dominant motive of the assessee was to make charity to those organisations ; and as Section 37(1) of the Act uses the expression 'wholly and exclusively for the purpose of the business' the assessee had failed to prove that those expenditures were laid out or expended wholly and exclusively for the purpose of the business of the assessee.

11. It is true that on the facts and circumstances as found by the Tribunal we are to decide whether there is any material to hold that those expenditures were laid out or expended wholly and exclusively by the assessee for the purpose of its business as contended by Mr. Sengupta but the matter does not rest here, for Dr. Pal has argued that the Tribunal could not at all go into the motive and in any event there is no material to hold that the primary and dominant motive of the assessee was to make charity to those organisations and not for the purpose of the business of the assessee as held by the Tribunal and, therefore, we will have to decide these contentions.

12. Section 37(1) of the Act does not speak of any motive. It says 'For the purpose of the business'. Motive is only relevant if the genuineness of the payment is questioned or any improper or oblique purpose issuggested by the revenue. But, neither the genuineness of those payments nor any improper or oblique purpose was at issue before the Tribunal and, therefore, it must be held that its conclusion is based wholly on irrelevant matters, namely, the purported primary and dominant motive of the assessee.

13. Further, the admitted and undisputed facts stated by the Tribunal in the statement of the case and also in its order including the rectification order forming part of the statement of the case lead to an irresistible conclusion that the Tribunal was not justified in going into the question of motive of the assessee in view of its finding of fact that there was an element of advertisement in making those insertions in those souvenirs of those organisations.

14. The Tribunal has said that it looked into the nature of those organisations, but it did not say anything as to their nature. To say anything on their nature on our part will be a matter of speculation and conjecture and, therefore, we refrain from saying anything on it. That apart, there is no nexus between the names of those organisations and the motive of the assessee. Moreover, the Tribunal did not put the Indian National Trade Union Congress, Rabindra Palli Sarbajanin Durgotsab Committee, Baranagar, and Loretto House into a separate group for the purpose of disallowing the payments made to the American Women's Club Welfare Fund, Bharatiya Sanskriti Bhawan, West Bengal Pradesh Congress Committee and Moral Rearmament. Therefore, the motive imputed by the Tribunal must be kept out of the field.

15. Furthermore, the amounts paid to those organisations, in view of the documentary evidence on the record, do not prima facie establish the motive imputed to the assessee by the Appellate Assistant Commissioner and the Tribunal. No oblique or improper purpose has been found by the Tribunal and the Tribunal has found that there was an element of advertisement in making those insertions in those souvenirs. It is not in dispute that advertisements are always made by the businessmen to push their products in the market. It is a well-recognised media through which the traders establish contact with the customers.

16. The Tribunal, in our opinion, did not apply its mind to the law laid down by the Supreme Court in the cases cited by Dr. Pal and, therefore, the conclusion reached by the Tribunal, namely, that those expenditures were not laid out or expended wholly and exclusively for the purpose of the business of the assessee cannot be supported.

17. The cases cited by Mr. Sengupta are not on advertisements or publication of souvenirs but on contributions or donations to political organisations and it was held that the payments were made ex gratia or by way of charity. Hence, they are wholly irrelevant for the purpose of determining the instant reference before us. But, at the same time, we agree with the view expressed in the case of Indian Steel & Wire Products Ltd. v. Commissioner of Income-tax : [1968]69ITR379(Cal) . In that case it has been held that the expression 'commercial expediency' is not a term of art and it means everything that serves to promote commerce and includes every means suitable to that end.

18. Advertisements are issued to promote commerce and, therefore, in the absence of any improper or oblique purpose in issuing those advertisements in the souvenirs of those organisations it must be held that they were issued to promote the business of the assessee irrespective of their result because the advertisements facilitate the carrying on of the business. Hence, it must be held that those expenditures were incurred or laid out by the assessee wholly and exclusively for the purpose of its trade and, therefore, we overrule the contentions of Mr. Sengupta.

19. In the premises, our answer to the question is in the negative and in favour of the assessee.

20. In the facts and circumstances of the case, we make no order as to costs.

Dipak Kumar Sen , J.

21. I agree.


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