1. These two appeals, one relating to the assessment year 1979-80 and another relating to the assessment year 1980-81, filed by the revenue against the orders of the AAC deal with a common issue and, are, therefore, for the sake of convenience, disposed of by a consolidated order.
2. The assessee is an individual. We were given to understand at the time of the hearing of the appeals, that the assessee is a business management consultant who specialised in the promotion of small-scale industries and on account of this knowledge, the assessee was appointed by the Government of Maharashtra as Managing Director of Maharashtra Minerals Corporation Ltd. and besides, was a consultant to a number of companies for whom he was a retainer. Among the claims before the ITO, in the course of the assessment proceedings, was the claim of deduction of payments to the National Institute of Motivational & Institutional Development (the National Institute), amounting to Rs. 12,294 for the assessment year 1979-80 and Rs. 14,800 for the assessment year 1980-81, in working out the income from profession. It was pointed out to the ITO that the National Institute was an approved institution under Section 35(1)(iii) of the Income-tax Act, 1961 ('the Act'), and this expenditure was, therefore, an admissible deduction under Section 35(1)(iii). The ITO, however, held that Section 35(1)(iii) applies only in the case of a business and not in the case of a profession and since the assessee was not carrying on any business, the assessee's claim of deduction was not admissible. When the matter went up in appeal, the AAC held that the assessee was an acknowledged authority on the subject of entrepreneurship and motivational development and it was on account of his indepth knowledge, expertise and experience in the field that he was appointed the Chairman of Maharashtra Small Scale Industries Development Corporation Ltd. (Government of Maharashtra Undertaking) right from its inception for a period of 12 years and was appointed to the Board of Nationalised Banks for advising and guiding the policy for promotion of small-scale industries and their development. According to the AAC, for this purpose, the assessee had to keep himself up-to-date with the latest literature, studies and research work and the payment to the National Institute was for the purpose of keeping himself up-to-date in his line of profession. He, therefore, held that the payments to the National Institute were allowable deductions under Section 35(1)(iii). The revenue is aggrieved and has, therefore, come up in the present appeals.
3. The learned departmental representative, Shri Subramanian, submitted to us that while sections 28, 30, 31, 32, etc., of the Act, speak of both business or profession, Clause (iii) of Sub-section (1) of Section 35 speaks of only business and since the assessee was not carrying on any business but was carrying on a profession only, the provisions of Section 35(1)(iii) will not be applicable to the assessee's case. On this basis, he vehemently argued before us that the claim of deduction of payments to the National Institute was not covered by the provisions of Section 35(1)(iii) and was wrongly allowed by the AAC in working out the income from profession.
4. On the other hand, the assessee's learned Counsel, Shri Tambe, submitted that the word 'business' includes 'profession'. Reference in this connection was invited by him to the orders of the Tribunal in the cases of ITO v. Miss Lata Mangeshkar [IT Appeal No. 1713 (Bom.) of 1981] since reported in [1982] 2 ITD 618 (Bom.), ITO v. R.S.M. & Co.
[IT Appeal No. 3117 (Bom.) of 1979], ITO v. PQR Consultants (P.) Ltd. [IT Appeal No. 3148 (Bom.) of 1982] and Dr. R.H. Dastur v. Third ITO [IT Appeal No. 1954-55 (Bom.) of 1979] since reported in [1982] 8 Taxman 165 (Bom.). It was also pointed out by him that the National Institute was an approved institution under Section 35(1)(iii). The alternative claim of the assessee's learned Counsel, Shri Tambe, was that the payment was, in any case, wholly and exclusively laid out for the purposes of the profession and was, therefore, an admissible deduction in working out the income from profession.
5. The learned departmental representative, Shri Subramanian, in reply, pointed out that in the cases cited by the assessee's learned Counsel, the Tribunal was dealing with the claim of weighted deduction under Section 35B of the Act, where no distinction is made between business and profession unlike in the present case where we are dealing with Section 35(1)(iii), which speaks of only business and not profession.
On this basis, Shri Subramanian distinguished the orders of the Tribunal which were cited before us at the time of the hearing.
6. We have carefully considered the rival submissions. At the outset, it would be necessary to point out that Section 28 of the Act speaks of profits and gains of business or profession. Section 2(13) of the Act defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
There is a separate definition of 'profession' in Section 2(36), whereby profession includes vocation. Even in Sections 30, 31 and 32, the sections speak of both 'business' or 'profession'. There are some other sections, e.g., Section 32A, Section 33, Section 33A, Section 33B, etc., where these sections speak of business only. This clearly shows the intention of the Legislature to draw a distinction between business and profession. Viewed in this context, the provisions of Section 35(1)(iii) under consideration in the present appeals are as follows: (iii) any sum paid to a university, college or other institution to be used for research in social science or statistical research related to the class of business carried on, being a university, college or institution which is for the time being approved for the purposes of this clause by the prescribed authority; This sub-clause speaks of research in social science or statistical research related to the class of business carried on. It is significant to note that the words 'business' or 'profession' as used in some other sections, as already described, are not here. We, therefore, agree with the learned departmental representative Shri Subramanian that Section 35(1)(iii) will have no application to the case of a profession only and will only apply where the assessee carries on business. Here it would be necessary to point out that while there are some instances of profession, e.g., a doctor, who runs a nursing home or X-Ray clinic where the exercise of his profession is of the nature of a commercial activity, which is not different from a person carrying on a business as laid down by their Lordships of the Hon'ble Madras High Court of in the cases of Dr. P. Vadamalayan v. CIT [1969] 74 ITR 94 and CIT v. Dr.
V.K. Ramachandran [1981] 128 ITR 727; this is not the case here.
Considering all this, we have no hesitation in coming to the conclusion that the assessee's claim of deduction of payments to the National Institute was not covered by the provisions of Section 35(1)(iii). The assessee's claim of deduction, on this ground, therefore, was not correct.
7. This, however, takes us to the alternative ground that the payments made to the National Institute were laid out wholly and exclusively for the purpose of profession and are, therefore, an admissible deduction in working out the income from profession. The Hon'ble Supreme Court in the case of CIT v. Ciba of India Ltd. [1968] 69 ITR 692 has laid down that even if an expenditure was not admissible as expenditure laid out on scientific research, it could be allowed as business expenditure laid out wholly and exclusively for the purposes of the business.
Viewed in this context, Section 37 of the Act reads as under: Any expenditure (not being expenditure of the nature described in Sections 30 to 36 and Section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'.
The issue, therefore, boils down to whether, even if the payments to the National Institute are not covered by the provisions of Section 35(1)(iii), the claim of deduction of the payments can be allowed under Section 37. It is not under dispute that the assessee is a business management consultant who, apart from being appointed to the Government of Maharashtra Undertaking, was also retained by other companies for professional advice from time to time. In order to carry on his profession and earn income therefrom, it was absolutely necessary that the assessee should be up-to-date with the latest literature, publications and research work in the assessee's line of profession. By payments to the National Institute, the assessee got the benefit of research work, studies and survey work carried on by the National Institute with the help of which the assessee was able to keep himself up-to-date in his profession of business management consultancy. The payments to the National Institute were, therefore, laid out wholly and exclusively for the purposes of the profession carried on by the assessee. In these circumstances, even if the payments to the National Institute were not an admissible deduction under Section 35(1)(iii), they were admissible deductions under Section 37 in working out the income from profession. We, therefore, uphold the order of the AAC allowing the claim of deduction of these payments in working out the income from profession, though on different grounds.