Advocate Akhilesh Kumar Sah

Akhilesh Kumar SahSection 37(1) and deductibility under it of maintenance of temple expenditure:

Section 37(1) of the Income-tax Act, 1961 (which corresponds to Section 10(2)(xv) of the Income-tax Act, 1922) allows deduction, while computing the income chargeable under the head “profits and gains of business or profession”, of any expenditure (not being expenditure of the nature described in sections  30 to 36 of the Act and not being in the nature of capital expenditure or personal expenses of the assessee) which is laid our or expended wholly and exclusively for the purposes of business or profession. Sometimes an assessee incurs expenditure for the purpose of business or profession but the item on which is expenditure is laid down, is not expressly covered by section 30 to 36 of the Income-tax Act (here-in-short referred to as ‘the Act’) and he wants to claim deduction of that expenditure, while computing of his income, through residuary sub-section (1) of section 37 of the Act.  But in the opinion of the Assessing Officer that particular expenditure do not qualify for the purposes of section 37(1) as such he disallows the same and the matter goes to appeal. There are many item of expenditure of revenue which are not covered by section 30 to 36 of the Act and, as a matter of fact, could not be covered by the legislating authority therefore section37(1) has applied the general language.

Therefore it is very important to elucidate the general language employed in the section so as to cover the expenditure incurred in the maintenance of temple and the performance of pooja in it.

Under section 37 of the Act, there is no requirement that an expenditure or outgoing must be incurred or laid with a view to earn profits. All that section requires is that the expenditure must be incurred or laid out wholly and exclusively for the purpose of the assessee’s business (CIT vs. Georgepolus (1984) 146 ITR 380 (Mad.). The expression “wholly and exclusively” used in section 10(2) (xv) of the I.T.Act, 1922 (where in the article this section is written. It corresponds to section 37(1) of the Act), does not mean ‘necessarily’. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2) (xv) even though three was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under above section if it satisfies otherwise the tests laid down by law (Sassoon J. David and Co. P. Ltd. vs. CIT (1979) 118 ITR 261 (SC).  In CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) it was observed at page 150 that the expression for the purpose of earning profits. In the case of Sree Meenakshi Mills Ltd. vs. CIT (1967) 63 ITR 207 (SC) it was observed expenditure incurred not with a view to the direct and immediate benefit for purpose 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 expression “commercial expediency” is not a term of art. it means every thing that serves to promote commerce and includes every means suitable to that end (Indian Steel & Wire Products Ltd. vs. CIT (1968) 69 ITR 379 (Cal.). In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue [J. K. Woollen Manufacturers vs. CIT (1969) 72 ITR 612 (SC) : Jamshedpur Motor Accessories Stores vs. CIT (1974) 95 ITR 664 (Pat)]. Commercial men are best experienced in commercial expediency (Indian Steel & Wire Products Ltd. vs. CIT (supra) at page 395). Under section 10(2)(xv) the assessee is entitled to deduction any amount expended by him wholly and exclusively for the purpose of the business. Once the reality of the expenditure for the purpose is accepted, no further question can arise, and the assessee will be, as a matter of right, entitled to deduction of the amount expended for that purpose. It is not for the revenue to embark upon business considerations and the reasonableness or otherwise of the quantum of expenditure Sanjeevi & Co. vs. CIT (1966) 62 ITR 156 (Mad.). Also it was observed by the Andhra Pradesh High Court in CIT vs. S. Krishna Rao (1970) 76 ITR 664, that in applying the test to find out whether a particular expenditure is wholly or partly justified or exclusively incurred for the purpose of business, is not to see whether it was necessary, nor it be proper to see whether any other person similarly situated would have thought it reasonable to incur expenditure to that extent.

The expenditure incurred on the maintenance of temple may not directly provide income but it has been held by SC in Sree Meenakshi Mills Ltd. vs. CIT (supra) that in order that an expenditure may be admissible as a deduction under section 10(2)(xv), it is not necessary that the primary motive in incurring it must be directly to earn income thereby. Though the main object of business is to earn profit, business purposes are wider than profit – making process.  Business expediency does not require that expenses should be incurred only for earning immediate profits. Expenses incurred, though not directly related to earning of income, may be allowable deductions if they are related to carrying on of the business (Birla Cotton Spinning & weaving Mills Ltd. vs. CIT (1967) 64 ITR 568 (Cal.). It is for the assessee to decide how best to protect his own interest. It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure (CIT vs. Dhanrajgirji Raja Narasingirji (1973) 91 ITR 544 (SC). Also, on accepted commercial practice and trading principles an item of business expenditure must be deducted in order to arrive at the true figure of profits and gains for tax purposes. If the contents of above rule be true on general principles, there is good reason why the scope of sec. 10(2)(xv) should be construed liberally (CIT vs. Kalyanji Mavji & Co. (1980) 122 ITR 49 at page 53 (SC).

The Gujarat High Court in Commercial Ahmedabad Mills Co. Ltd. vs. CIT (1993) 114 Taxation 165; 204 ITR 505 (Guj.) has taken the view that it is for the assessee to decide as to what is in the interest f its business and, therefore, if the nexus between the expenditure and business of the assessee or welfare of a class of his workers is established , then it can be said that the expenditure incurred by him for the purpose of his business. In the above case temple in the mill premises was maintained by the assessee. The assessee claimed deduction of expenditure incurred by way of salary to a pujari who was employed in the temple for performing puja. The Court held that the expenditure was neither personal in nature nor purely of religious nature but was incurred for the purpose of and in the interests of the business of the assessee and was deductible as business expenditure. The Court found that there was nothing to show that the said temple was maintained with the help of a pujari for personal benefit of any person and the temple appeared to have been maintained by the assessee mill company for the general benefit of its employees. However, it is to be noted that where it is contended that the pujari was employed for invoking the blessings of Gods and Goddesses for the benefit of the assessee and the expenses are incurred by the assessee because of his belief in supernatural blessings, such expenses can’t be regarded as expenses incurred for the purposed of carrying on business and spent by assessee as a businessman (CIT vs. Bhannamal & Co. P. Ltd. (1971) 82 ITR 138 (Del.)

Depreciation on temple building, under section 32(1). Treating it for the purposes of business:

The topic deals with depreciation on temple building which is for the purposes of business or profession of an assessee so going in accordance with section 32(1). i.e. fulfilling the two vital condition, firstly the ownership and secondly the usage for the purposes of business or profession of an asset for claim of depreciation under the above section, if an assessee proves that the building of the temple is owned by him and the same is for the welfare of the employee and that on account of commercial expediency the claim of depreciation shall be allowed.

In CIT vs. Associated Flour Mills Pvt. Ltd. (1996) 133 Taxation 145 (Gau.), the assessee claimed depreciation on temple building constructed in business premises. The Court confirmed the order of the Tribunal by holding that depreciation was rightly allowed. While delivering the judgment the Court  relied on a decision of Punjab & Haryana High Court reported in Atlas Cycle Industries Ltd. vs. CIT (1982) 134 ITR 458 (P&H). In the above case the assessee company, which derived its income from the manufacture and sale of cycles and spare parts, constructed a temple primarily and directly for the benefit of its employees inside the factory premises and claimed before the ITO that the temple was a business asset entitled to depreciation under section 32 of the Act. The ITO rejected the claim of the assessee. On appeal the AAC (now referred to as Commissioner  (Appeals) held that the depreciation claimed on the temple building was not allowable as it was not a business asset and that the expenditure incurred for the maintenance for the temple was not an admissible deduction. On further, appeal, the Tribunal affirmed the order of AAC. Then on a reference the P&H High Court held that since the temple had been erected for the purpose of the labour and this was a measure to keep them happy. it was a business asset and depreciation was allowable thereon under section 32 and accordingly it held temple maintenance expenditure as the expenditure laid out or expended wholly and exclusively for the purpose of the assessee’s business and was an admissible deduction under section 37. The court while delivering the judgment observed at page 465 :

“It cannot be disputed that a satisfied worker is a great asset to the business and the satisfaction of the worker not only depends upon the packet which he receives at the end of the month but also on the other amenities provided to him by his employer…….if the workers can overcome their boredom by playing cards in a club, we see no reason for holding that they cannot achieve the same result by singing hymns in a temple. Besides, we see no reason to place any curbs on the discretion of the assessee to provide the type of recreation, which according to it, would best advance the interests of its business. What we have to see is whether the recreation provided, even if it be in the nature of religious activity, has a direct nexus with the welfare of a class of the workers engaged by the assessee or not. If the answer to this proposition is in the affirmative, it is wholly immaterial if the recreation provided is directly or indirectly connected with the religious tenets of a section of the society.”

In the same (above) assessee’s case Atlas Cycle Industries Ltd. vs. CIT (1990) Taxation 96(3) – 12; 181 ITR 18 (P&H), pertaining to another financial year, the P&H High Court again relying on its own decision (cited as above (1982) 134 ITR 459 held that depreciation under section 32(1)(ii) of the Act was admissible in respect of the building of Ram Mandir (temple) and the amount spent on the maintenance of temple was deductible under section 37(1) of the Act.

Deepawali & Mahurat Pooja expenses:

Parting a way from our topic in respect of pooja, etc. expenses in respect of temple maintained by an assessee, here a direct circular in Diwali & customary pooja expenses is dealt with. According to (that) Central Board of Direct Taxes (CBDT) circular No. 17 of 1943 dt. 6-5-43 & its further letter dated 30-10-1968 in respect of the above circular, expenses incurred on the occasion of Diwali and Mahurat (i.e. the auspicious day of starting new accounts)( are in the nature of business expenditure and no monetary limit has been laid down (earlier limit of Rs. 200 in the circular has been removed by above CBDT letter dt.  30-10-1968) for the ITO being satisfied that the expenses were admissible as a deduction under the law and were not expenses of a personal, social or religious nature. The CBDT has considered that such expenses are generally on in the incurred in the interests of business. Relying on the above circular & letter the Allahabad High Court in Brijraman Das & Sons vs. CIT (1983) 142 ITR 509 allowed under section 37(1) of the Act the expenditure incurred by the assessee on the Ganeshji ki puja.

Onus of proof:

The Supreme Court has held in CIT vs. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC) that if an amount is contended to be an expenditure falling under section 10(2)(xv), the burden of proving the necessary facts in that connection is on the assessee.


From the above, one can find that the expenditure incurred in the maintainence of temple which wholly and exclusively connectable with the purposes of the business and is not in the nature of capital expenditure or personal expenses, the same can be claimed as deduction under section 37(1) of the Act, but there can be different view of Revenue authorities.

The expenditure “wholly and exclusively laid out for the purpose of the business” as in section (10)(2)(xv) does not mean expenses incurred only for earning minimum profit. Expenses incurred, though not directly related to the earning of income may be the allowable deduction if they are related to the efficient carriage of the business even indirectly (Indian Steel & Wire Products Ltd. vs. CIT (1968) 69 ITR 379 (Cal.) at page 393. The above tests can be applied in case of other items of expenditure, which are not specifically covered by sections 30 to 36 of the Act, for claiming deduction under section 37(1), e.g. it was held in Teksons Pvt. Ltd. vs. CIT (1979) 120 ITR 745 (Bom.) that the expenditure incurred by the assessee for preparation of the playground was incidental to the activities of the assessee and was a revenue expenditure allowable under section 37(1).

In M/s Steel Tubes of India Pvt. Ltd. vs. CIT (1996) 133 Taxation 185 (MP) the assessee incurred certain expenditure on development of a garden in front of its factory. The M.P. High Court on facts and circumstances of the case held the above expenditure neither in the nature of capital or personal expenditure and allowed the captioned expenditure as deductible under section 37(1) of the Act. The same court in Hindustan Electro Graphite Ltd. vs. CIT (1996) 133 Taxation 195 (M.P.) allowed the expenditure, on plantation in factory by the assessee to be deducted in terms of subsection (1) of section 37 of the Act. The division Bench of the Delhi High Court in CIT vs. Delhi Cloth and General Mills Co. Ltd. (1978) 115 ITR 659 held the amount spent by an assessee for conducting an All India tournament in hockey and football to which teams from various parts of the country were invited the same was an expenditure incurred for the promotion of the business of the company as the said tournaments tended to make the name of the company a household word. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may incur to the benefit of a third party (CIT vs. Chandulal Keshvlal & Co. (1960) 38 ITR 601 (SC); Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC). A business expenditure is a voluntary act on the part of a businessman to spend or set apart money for carrying on, or in connection with, his business with a view to earning profit.

It is now well-settled that the deductions allowed in determining the income enumerated in the Income-tax Act are not exhaustive (Kamlapat Motilal vs. CIT (1976) 104 ITR 783 (All) at page 784.

To claim depreciation under section 32 of the Act on temple building an assessee has to prove two things firstly its title & secondly that it is being maintained for his business interests. If there is evidence to show that an assessee is having the title to the temple building and the temple is maintained for the same can be allowed under section 32 of the Act (see Atlas Cycle Industries Ltd. vs. CIT (1982) 134 ITR 458 (P&H).

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