Brief– By donating the amount, the firm had been able to attract good Articled Clerks and other professional persons who are the backbone of any professional practice. Thus there was a good professional reason for the firm to contribute to the building fund of the Branch of the ICAI. The said payment satisfies the commercial expediency test as the contribution had a direct nexus with the carrying on of the profession by the firm. Further, if the claim was allowable under section 37(1) itself there was no case for proceeding to section 80G which applies to all assessee’s whether or not they carrying on business or profession.
Facts of the Case
Facts in brief are that the assessee is a firm of Chartered Accountants established in the year 1955. During the year, firm paid a sum of Rs. 20,00,000 to Pune Branch of Western India Regional Council of The Institute of Chartered Accountants of India as contribution towards construction of a building for the Pune Branch of the Council. The payment was made vide Cheque No. 991364, dt. 27-3-2009. The Firm had claimed the aforesaid payment as an expenditure incurred wholly and exclusively for the purposes of the profession and not as a donation deductible under section 80G.
The learned assessing officer has taken a view that it is in the nature of a donation; provisions of section 80G are specific and will override those of section 37(1) which are general in nature. He further held that the assessee has not proved that donation was made wholly and exclusively for the purpose of the firm.
By the impugned order Commissioner (Appeals) confirmed the action of the assessing officer against which assessee is in further appeal before us.
Held by ITAT
We have considered rival contentions and carefully gone through the orders of the authorities below. We have deliberated on the judicial pronouncements referred by lower authorities in their respective orders and cited by learned A.R & D.R. during the course of hearing before us in the context of factual matrix of the instant case. From the record we found that the Pune Branch of the Western India Regional Council (the branch) of the Institute of Chartered Accountants of India (ICAI) had proposed to construct a building for locating its administration office including an auditorium, information technology centre, reading room facilities, pantry, cafeteria and parking facilities for the members and students of the institute. For that purpose the branch had raised funds by way of donations/contributions from members/students of the ICAI to the extent of about Rs. 3.65 cr. to partly fund the total cost of about Rs. 7 cr. to be incurred for the purchase of the building and the aforesaid facilities and amenities proposed to be provided in the said premises. The said building was purchased to meet the long standing demand of the professional fraternity in Pune for a proper office space wherein all the requisite administrative functions could be discharged at a centralized location and the activities of the professional body would be coordinated smoothly, effectively and efficiently befitting the stature of the branch of the apex accounting body of the country. The said administrative building therefore could provide the necessary infrastructure facilities for the mutual convenience, advantage and benefit of the members and particularly members and aspiring students based in Pune.
We also found that for the said purpose the Pune Branch had set up Pune Branch Building Fund and, the Institute has received approval under section 80 G of the Income Tax Act, 1961 ref. O.DIT (E) 2005-06 T. 1041/1001 valid up to 31-3-2009. Assessee firm has major presence in Pune around half of its compliance clientele and 30-40% of the revenues are generated from Pune. Pune branch of the firm presently employs more than 75 personnel including Chartered Accountants, Semi Qualified and Articles. The firm and its partners have since been exposed to greater exposure and participation in seminars, symposiums etc., By donating the amount, the firm has also been able to attract good Articled Clerks and other professional persons who are the backbone of any professional practice. Thus there was a good professional reason for the firm to contribute to the building fund of the Pune Branch of the ICAI that the said payment satisfies the commercial expediency test as the contribution had a direct nexus with the carrying on of the profession by the firm The Hon’ble Supreme Court in the case of SA Builders 288 ITR 1 reiterated the proposition that the expression “commercial expediency” is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency.
The Madras High Court in the case of Chemicals and Plastics India Ltd. 292 ITR 115 upheld claim for deduction of an amount of Rs. 1.5 lakhs paid towards construction of a building of the Madras Chamber of Commerce of which the assessee was a member. The High Court held that the approach needs to be that of a practical and prudent businessman rather than from the Revenue’s strict classification of a right. Relying on the decision of the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractor Co. 223 ITR 101 it held that the correct test is that of commercial expediency. In that case’ the Supreme Court had held that any contribution made by the assessee to a fund which is directly connected or related to the carrying on of the assessee’s business or which results in benefit to the assessee’s business, has to be regarded as a deduction allowable under section 37. The Madras High Court held that the ratio decidendi of this decision would apply to similar contributions made to non-public welfare funds. The Madras high Court held that activities of the Chamber of Commerce are closely linked with the welfare of the corporate entities who are members therein and whose interest are taken care by the Chamber of Commerce.
In Rupsa Rice Mills 104 ITR 249 the Orissa High Court upheld claim for deduction of a sum donated for constructing a primary health centre building located near the factory premises as it would provide treatment to the ailing workmen.
In the case of Shree Rajasthan Syntex Ltd. 221 CTR 410 the Rajasthan High court upheld claim for deduction as business expenditure of contribution given to a trust for construction of a school building. The High Court upheld the decision of the Tribunal that the donation was allowable as business expenditure.
The Mumbai Tribunal, in the case of Hindustan Petroleum Corporation Ltd. 54 SOT 315, upheld claim for deduction as a business expenditure of contribution made to Government of India’s 20 Point Program.