CIT Vs Tata Engineering & Locomotive Company Ltd (Bombay High Court)
Bombay High Court held that amount paid towards community services and social welfare under Memorandum of Settlement under the Industrial Dispute Act is allowable as business expenditure.
Facts-
Vide the present writ petition, petitioner has raised two question of law i.e. whether the ITAT was justified in law in upholding the action of the CIT(A) in deleting the disallowance of Rs.1,96,71,842/- made under section 40A(9) of the Act and whether a payment made under a memorandum of settlement under the Industrial Disputes Act can be said to be a payment required by or under any law.
Conclusion-
Supreme Court, in the case of Sri Venkata Sathyanarayana Rice Mill Contractors Co. vs. Commissioner of Income Tax, it is held that the contribution to a public welfare fund, if connected with or related to a carrying on the assessee’s business, or if it results in benefits to the assessee’s business, should be an allowable deduction.
Held that if at all the Memorandum of Settlement is relevant, it would be to show that there was a nexus between such social welfare activity undertaken by the Respondent-Assessee and the business of the Respondent-Assessee. The local harmony and goodwill that the social welfare and community expenses generated, benefited the Respondent-Assessee’s conduct of business. That such expenses were being incurred was acknowledged and recited as a continuing commitment. Thus, merely because such expenditure finds a place in the Memorandum of Settlement, the nature and character of such expenditure would not be altered, so as to fall under Section 37(1), or to attract Section 40A(9).
