ORDER
Per D. S. Meenakshisundaram, Judicial Member - The appellant is a public limited company carrying on business in the manufacture and sale of industrial alcohol and allied products. This appeal relates to its income-tax assessment for assessment year 1982-83, for which the previous year ended on 31-5-1981. The only point of dispute in this appeal relates to the disallowance of a sum of Rs. 20,564 incurred by the assessee in connection with the Vth World Tamil Conference. The Income-tax Officer disallowed it without assigning any reasons. Apparently, the considered the expenditure as entertainment expenditure, because the disallowance made by him is in the following words :-
'Dinner expenses for Tamil Conference Rs. 20,564.' Before the CIT (Appeals) it was contended that the expenditure should be viewed in the nature of publicity and was hence an allowable business expenditure. It was further contended before him that the assessee had to get licences and permits from the State Government for carrying on its business and so the expenditure incurred in connection with the Tamil conference conducted by the State Government should be viewed as out of business expediency. The CIT (Appeals) did not agree with these submissions of the appellant. He held that it was not possible to visualise any direct nexus between the assessees business and the Tamil Conference. He held that the money spent on providing dinner to the delegates of the Conference had no connection whatsoever with the appellants business in the manufacture of industrial alcohol and other products and that at the most it could be said that the amount spent was for a worthy cause. He, however, held that however worthy the cause is, that by itself would not make it an allowable item of expenditure. He therefore upheld the disallowance made by the Income-tax Officer. Aggrieved by this decision of the CIT (Appeals), the appellant has come up on further appeal to the Tribunal.
2. Shri T. N. Seetharaman, the learned counsel for the appellant placed before us the letter received from the Special Officer, Vth World Tamil Conference, 1981 addressed to the Managing Director of the assessee-company on 27-1-1981 and the copy of the letter dated 18-2-1981 enclosing two cheques for Rs. 20,000 each to the Special Officer, together with the receipt issued by the Special Officer for the receipt of Rs. 20,000 from the assessee-company, and submitted that this expenditure represented only business expenditure incurred by the assessee out of commercial expediency, as the holding of the Vth World Tamil Conference at Madurai in 1981 was an important event in the cultural life of the people of Tamil Nadu and therefore the expenditure incurred by the assessee at the instance of the State Government on the occasion of the said conference was an allowable expenditure under sec. 37(1) of the Income-tax Act. In support of his submissions, the learned counsel relied on the decisions of the Appellate Tribunal in the case of Varadhalakshmi Mills Ltd. v. Addl. ITO [1984] 8 ITD 644 (Mad.), Vijayakumar Mills Ltd. v. IAC [1986] 17 ITD 321 (Mad.) and of the Madhya Pradesh High Court in the case of Addl. CIT v. Kuber Singh Bhagwandas : [1979]118ITR379(MP) . The learned counsel further submitted that the expenditure in question was not in the nature of entertainment expenditure and therefore it would not fall within the mischief of entertainment expenditure as defined in Explanation 2 to section 37(2A) of the Act. The learned departmental representative relied on the findings of the CIT (Appeals) and contended that the disallowance was fully justified, as there was no nexus between the expenditure incurred by the assessee with its business and further it would be hit by the provisions contained in Explanation 2 to section 37(2A) of the Act, as entertainment expenditure.
3. We have carefully considered the submissions urged on both sides in the light of the materials placed before us. It is clear from the materials referred to above that the sum of Rs. 20,564 was incurred by the assessee for providing lunch to the delegates to the Vth International Conference of Tamil Studies, which was held as part of the Vth World Tamil Conference at Madurai in 1981. It would be clear from the letter of the Special Officer dated 27-1-1981 addressed to the Managing Director of the appellant-company that the Conference was sponsored, organised and held by the Government of Tamil Nadu on a grand scale at Madurai and that delegates from all over the world had assembled at Madurai during the period of the conference. The appellant-company and another allied company, namely, Thiru Arooran Sugars Ltd. had hosted a lunch to the delegates of the Fifth International Conference of Tamil Studies held as part of the Vth World Tamil Conference. The Special Officer has informed the assessees Managing Director that they have received a bill for Rs. 40,000 from Pandian Hotel at Madurai where the lunch was given to the delegates. He had requested the Managing Director to send the cheques in his favour. In reply to this, the managing Director sent two cheques of Rs. 20,000 each, one from the appellant-company and the other from Thiru Arooran Sugars Ltd. on 18th Feb. 1981. The official receipt for Rs. 20,000 in favour of the Managing Director of the assessee-company was issued by the Asstt. Special Officer (Accounts), Vth International Tamil Conference, Madurai on 26-2-1981. On the above facts, there is no dispute about the genuineness of the expenditure incurred by the appellant-company.
4. We are unable to agree with the revenues contention that the expenditure in question is in the nature of entertainment expenditure falling within the mischief of Explanation 2 to sec. 37(2A) of the Act merely because it was paid towards the bill of Pandian Hotel for providing lunch to the delegates of the Conference. In our view, is only a small portion of the expenditure incurred by the Government of Tamil Nadu for holding the World Tamil Conference, which the assessee was called upon to pay through its Managing Director. This would be clear from the fact that the amount was not paid by the assessee to the hotel, but to the Special Officer, who was in charge of the World Tamil Conference, Government of Tamil Nadu.
5. In our view, the expenditure in question must be held to be only business expenditure incurred by the assessee out of commercial expediency, having regard to the fact that the appellant-company is carrying on business in industrial alcohol in the State of Tamil Nadu and it has to depend upon the State Government for supply of its raw material to its factory, namely molasses and also deal with the State Govt. officials at various levels in the ordinary and usual course of its day-to-day business. It had to keep alive the good image of the company and earn the goodwill of the general public in Tamil Nadu by means of such contribution to the State Government. The assessees case is directly covered by the Full bench decision of the Madhya Pradesh High Court in the case of Kuber Singh Bhagwandas (supra) where the contributions made by the traders in Madhya Pradesh State to the Madhya Pradesh Chief Ministers Drought Relief Fund for obtaining export permits to send their goods, namely Gulabi Channa and pulses outside the State of Madhya Pradesh were held to be admissible business expenditure under sec. 37(1) of the Income-tax Act, 1961. In this connection, the Full bench of the Madhya Pradesh High Court has reviewed the entire case law on commercial expediency starting from Eastern Investments Ltd. v. CIT : [1951]20ITR1(SC) to Shahzada Nand & Sons v. CIT : [1977]108ITR358(SC) and held that the expression 'commercial expediency' is not limited to an existing practice prevailing in any particular trade or business, that even if the incurring of a particular expenditure may not be supported by any prevailing practice, yet, if at the time when the expenditure is incurred, commercial expediency justifies it, the expenditure would be taken to be for the purposes of the business. Their Lordships further held that for an expenditure to fall within sec. 37(1) of the Act, it is not necessary that it should have been incurred necessarily, that an expenditure can be allowed under sec. 37(1) if it fulfills the necessary conditions even though it is incurred voluntarily and without any necessity, that the expression 'for the purposes of business' as it occurs in the section is wider in scope than the expression 'for the purposes of earning profits'. Their Lordships further held that it may take in not only the day-to-day running of a business, but also many other acts incidental to the carrying on of the business and that, to decide whether a payment of money or incurring of expenditure is for the purpose of the business and an allowable expenditure, the test applied is of commercial expediency and principles of ordinary commercial trading. Their Lordships also held that if the payment or expenditure is incurred to facilitate the carrying on of the business of the assessee and is supported by commercial expediency, it does not matter that the payment is voluntary or that it also enures to the benefit of a third party. Their Lordships finally held that if the sole object is business promotion, the expenditure would be one incurred wholly and exclusively for the purposes of the assessees business even though some other object necessarily results, being inherent in the nature and quality of the expenditure.
6. In the case of Sassoon J. David & Co. (P.) Ltd. v. CIT : [1979]118ITR261(SC) wherein Their Lordships of the Supreme Court have explained the meaning of the expression 'wholly and exclusively' used in section 10(2) (xv) of the old Indian Income-tax Act, 1922 in the following words, at pages 275 and 276 of the reports :
'It has to be observed here that the expression 'wholly and exclusively' used in s. 10(2) (xv) 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 s. 10(2) (xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the I. T. Act, 1961, which corresponds to sec. 10(2) (xv) of the Act. An attempt was made in the I. T. Bill of 1961 to lay down the 'necessity' of the expenditure as a condition for claiming deduction under s. 37. Section 37(1) in the Bill read 'any expenditure .... laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed ....' The introduction of the word 'necessarily' in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word 'necessarily' came to be dropped. 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 s. 10(2) (xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT v. Chandulal Keshavlal & Co. : [1960]38ITR601(SC) :
'Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purposes outside the course of business then the expenditure is not deductible. 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 of expenditure is incurred for the purpose of the trade of the assessee it does matte that the payment may enure to the benefit of a third party (Ushers Wilshire Brewery Ltd. Bruce (1914) 6 TC 399 . Another test is whether the transaction is properly entered into as a part of the assessees legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby [Eastern Investments Ltd. v. CIT : [1951]20ITR1(SC) . But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.'
7. In Amarjothi Pictures v. CIT : [1968]69ITR755(Mad) , the Madras High Court held that the expenses incurred by the assessee in connection with the Silver Jubilee run of one of its pictures was an allowable expenditure under sec. 10(2) (xv) of the Act. The said expenditure was incurred for presenting shields to the theatres, artistes and others.
8. In CIT v. Tata Sons (P.) Ltd. : [1978]111ITR290(Bom) a sum of Rs. 1 lakh was contributed by the assessee to the managed mills on the occasion of the Golden Jubliee celebrations of the managed mills, without earmarking the contribution for any particular purpose, but which amount was utilised by the managed mills for construction of a canteen for its workers. It was allowed as business expenditure under section 10(2) (xv) of the Indian Income-tax Act, 1922.
9. In CIT v. Delhi Cloth & General Mills Co. Ltd. : [1978]115ITR659(Delhi) the expenditure incurred by the assessee-company for organising football and hockey tournaments was held to be an allowable deduction under sec. 10(2) (xv) of the Indian Income-tax Act, 1922.
10. In CIT v. Dascroi Taluka Co-operative Purchase & Sales Union Ltd. : [1980]126ITR413(Guj) the expenditure incurred by the assessee on purchase of wall clocks for presentation to other co-operative societies and household stainless steel utensils for distribution to its members on the occasion of its silver jubilee was held to be an admissible business expenditure under sec. 37(1) of the Income-tax Act, 1961. It was held by the Gujarat High Court that these expenses were incurred wholly and exclusively for the purpose of its business on the occasion of the silver jubilee, since the amount were spent for keeping alive the good image of the company among its members, for generating goodwill and for ensuring the continuity of business with the member-societies.
11. In R. B. Narain Singh Sugar Mills (P.) Ltd. v. CIT : [1981]129ITR698(Delhi) the Delhi High Court allowed the contributions made by the assessee-company to the Sugarcane Development Council under a scheme sponsored by the State Government in which the finances required for the scheme were to be shared by the Central and State Governments and the factories and the growers of sugarcane concerned in the particular area, as allowable business expenditure under sec. 37(1) of the Act.
12. In Vijayakumar Mills Ltd.s case (supra), the Appellate Tribunal, Madras Bench-A allowed the expenditure incurred by the appellant-company in the said case on flood relief amounting to Rs. 1,02,681. At page 325 our learned brothers held as follows :
'In such situations of devastating floods everybody contributes their might for relief. So the workers would have ordinarily requested the mill to make a lead in such matters. So the expenditure was at the behest, initiative and desire of the local officials and mill workers. The assessee in private enterprise cannot afford to displease the local officials nor their workers. Non-cooperation with the local officials or indifference to the request of the workers will lead to difficult situations. The adverse effect of such a conduct can well be imagined than described. So the expenditure incurred at the behest of Government officials and mill workers is amply supported by commercial expediency. It is, therefore, allowable under section 37. There is nothing personal, capital, charitable or donative in such expenditure. It was all incurred only because of pressure from outside authorities. It was not a voluntary charitable donation. So it is allowed. Ground allowed.'
13. Similarly, in Varadhalakshmi Mills Ltd.s case (supra), the Appellate Tribunal, Madras bench A held that the donation made by the assessee-company to the Chief Ministers Public Relief Fund for facilitating flood relief to its employees affected by flood was an allowable business expenditure under sec. 37(1) of the Act. At page 646 our learned Brothers held as follows :
'In a similar way we can say, with our local knowledge as persons intelligently concerned in the relevant local affairs, that the assessee could well act under the impression that contributions to the Chief Ministers Relief Fund goes a long way in speeding up the transactions of the assessee with the authorities concerned. It is also apparent from the facts on record that this contribution was made for the purpose of getting relief to the workers who are also affected by the floods and apart from being an expenditure laid out for the purpose of the business was also an expenditure made for the welfare of the workmen.'
14. In the light of the above authorities and the decisions of the High Courts and the decisions of the Tribunal quoted above, which we respectfully follow, we hold that the contribution made by the assessee-company to the Government of Tamil Nadu in connection with the Vth World Tamil Conference is to be allowed as business expenditure under sec. 37(1) of the Act. Accordingly, we delete the disallowance of Rs. 20,564 made by the departmental authorities under this head and allow the same.
15. In the result, the appeal is allowed.