ORDER
Hariom Maratha, J.M.
1. As both the above appeals are inter-related and involve identical issues, they are being disposed of by this common order for the sake of convenience.
2. ITA No. 215/Jp/1995 for asst. yr. 1992-93 and ITA No. 2273/Jp/1996 for asst. yr. 1993-94 are two appeals by the Revenue and are directed against the order of CIT(A), Jodhpur, dt. 23rd Nov., 1994, and 27th Sept., 1996, respectively.
3. The facts leading to these issues are that the assessee-respondent is a cooperative society, registered under the Rajasthan Co-operative Society Act, 1965. As the name Churu Zila Sahakari Dugdh Utpadak Sangh Ltd., Sardarshahar, Distt. Churu, itself suggests, the main activity of the assessee-society is to collect milk of all member societies at a reasonable rate, to process the same in a scientific manner, distribution of the same, preparation of other allied milk products, development of a dairy plant, to promote several member societies to produce fodder, other agricultural produce for the cattle, to provide medical relief to the said cattle, get them insured, etc. All these main activities are mentioned in the bye-laws of the co-operative societies which are annexed with the file. The important activities of the. society are to increase productivity of milk in the cattle, to provide artificial insemination, exchange of technical input programme (TIP, for short) improvement of cattle for better production of milk, etc. The main concern of these appeals is the activities which are related to TIP. For this TIP, a grant is provided by the Rajasthan Co-operative Dairy Federation Ltd. (RCDF for short), but according to the bye-laws, the assessee-society has to fulfill the main objectives, including the one under consideration, by the assessee-society only. The assessee-society has to incur expenditure on field staff, directors, technical personnel, etc. The case of the assessee is that when once the activity is undertaken, expenditure is incurred on the same, in case any deficit remains there, it is to be allowed as deductible expenditure. Whatever amount is received by way of grant/aid from RCDF, the same is credited in this account. Ultimately, the annual net deficit is carried to P&L a/c Undisputedly, there are 150 small samities attached to the society which is the main milk co-operative society of District Churu. According to the assessee, society has to depend upon its own resources to carry out the activity of TIP, because, sometimes subsidy/grant may come or may not come and sometimes it is delayed and sometimes it lapses also. The assessee has to impart training to various members of the society, villagers which include women, on matters relating not only to milk but also on other aspects of the life as well. It is also the case of the assessee that the assessee has field staff and other technicians which are headed by the managing director. Major decisions are taken after approval and are sent to Board/District Collector. Once a project or programme is undertaken, it has to be concluded. The said project/programme may go on for a number of years.
4. It is revealed from the facts on record that the grant by the Government is lower whereas the expenditure is on the higher side. The grant is secondary and once the basic/major activities are undertaken by the assessee-society, then whether grant is received or not, the assessee has to continue its activities. After training is imparted to the villagers for TIP, then in years to come, when they are trained, they opt to get the best out of the cattle, which in turn, helps the villagers and the assessee as well. The entire expenditure is detailed, vouched, verifiable and accounts are audited. This fact is not disputed by the Department as well. The auditors are appointed by the Government of Rajasthan/Co-operative Department. On the other hand, the Department is of the view that this activity, namely, TIP is completely sponsored by RCDF and that this expenditure is not relating to the business of the assessee.
5. The CIT(A) held that there is no doubt about the genuineness of the expenditure and that it is immaterial if the appellant is reimbursed for the expenditure incurred on training, etc. and that the claim has to be allowed in this year for the expenditure incurred under this head.
6. Now the Department is in appeal before us by raising the ground that the CIT(A) has erred in deleting the disallowance of administrative expenses on imparting training in respect of TIP.
7. We have considered the rival submissions and have also gone through the records. The learned Departmental Representative Shri Mantri has submitted that the activity in question does not relate to the business of the assessee-society and he has sought help from para 5 of the AO’s order. The learned AO, in its order, has observed that under this programme the assessee imparts training and assists primary co-operative societies in various matters. These activities are basically not the business of the assessee and is apparently completely sponsored by the RCDF. According to the AO, this amount is to be set off by the assessee out of reimbursement received from sponsoring agencies.
8. We have gone through bye-laws of the assessee-society which are placed at p. 16 of the paper book. The programme which is called TIP is a compulsory programme as per these bye-laws which the assessee-company has to definitely carry out and for that matter a grant is also given in aid to carry on such programme. It seems that the Department has not doubted the expenditure incurred but only has raised objection that these expenditure are not relatable to the business of the assessee, so they are not allowable under the provisions of Section 37 of the IT Act. Now we have to decide as to whether the expenditure in question is related with the assessee’s business or not. The learned authorised representative has relied on a decision of Mumbai High Court in the case of Krishna Sahkari Sakhar Karkhana Ltd. v. CIT (1998) 229 ITR 577 (Bom) wherein it has been held as under:
“Section 37 of the IT Act, 1961, provides for deduction of any expenditure laid out or expended wholly and exclusively for the purposes of the business in computing the income chargeable under the head “Profits and gains of business or profession”. The only exception is capital expenditure or personal expenses of the assessee or expenditure of the nature described in other sections of Chapter IV of the Act. The expression “for the purpose of the business” is wider in scope than the expression “for the purpose of earning profits”. Its range is wide : it may take in not only the day-to-day running of a business but also the rationalization of its administration and modernization of its machinery, it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title, it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. The only limitation is that it should be for the purpose of the business, that is to say, the expenditure incurred should be for the carrying on of business and the assessee should incur it in his capacity as a person carrying on the business. It cannot include sums spent for purposes unconnected with the business.”
9. The Hon’ble Supreme Court in the case of CIT v. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 (SC) has held that true test of an expenditure laid out wholly and exclusively for the purpose of trade and business is that it is incurred by assessee as incidental to his trade for the purpose of getting the trade going and of making it pay and not in any other capacity than that of a trader. It has further been held that the expenditure incurred on the preservation of a profit-earning business is always a deductible expenditure.
10. The Hon’ble Calcutta High Court in the case of Birla Cotton Spinning and Weaving Mills Ltd. v. CIT (1967) 64 ITR 568 (Cal) held that as the expenditure was incurred by the assessee-company in opposing an illegal and coercive Governmental action with the object of saving taxation and safeguarding the business, it was justified by commercial expediency and was, therefore, allowable expenditure.
11. The Hon’ble Bombay High Court in the case of Raja Ram Bandekar (1994) 208 ITR 503 (Bom) has given the same finding as that of Delhi after following the Supreme Court decision in (1982) 133 ITR 756 (SC) (supra). Likewise the Hon’ble Allahabad High Court in the case of J.K. Commercial Corporation Ltd. v. CIT (1969) 72 ITR 296 (All) has also held as under :
“It is well settled that an expenditure incurred for preservation or production of a capital asset is revenue in nature and not a capital expenditure. The test of allowability is not what a prudent man would do in similar circumstances. Though the assessee is an imprudent businessman, yet if he incurs an expenditure voluntarily for the purpose of his own business, it would be allowable for proper deduction. The fact that it was not necessary for the assessee to bear the entire expenditure or that the expenditure also ensured to the benefit of others is entirely irrelevant in determining the question whether the expenditure ought to be allowed as a deduction.”
12. In this case if we apply the ratio of the above decisions to the facts of this case, we are of the considered opinion that the expenditure incurred towards TIP by assessee-society is definitely relatable to its business, for preservation of the business, for getting the business of the assessee-society going on, etc. As the name TTP suggests, the technical training is a must for the persons who are dealing in milching process from the cattle and the technical method by which the milk produced by such milching is preserved in a better and hygienic way and for longer period is definitely a business activity of the assessee which definitely helps in increasing the production/profits as well as in keeping the business of the assessee going on. A condition has been laid down by the Government to “have the TIP programme, that too for the betterment of the business of the assessee-society, which is mainly dealt by villagers. This condition is mandatory and is to be carried out by the assessee in order to continue its business. However, the grant-in-aid whenever these are received by assessee, from the Government, are to be taken care of by the Department as and when these are received and are to be dealt with in accordance with law.
13. As a result, we decide that the order of the CIT(A) does not require any interference from us. The appeals of the Department are dismissed.
