ORDER
M. M. Cherian, A.M.
1. These two appeals, ITA No. 245/Coch/92 by the assessee and ITA No. 360/Coch/92 by the Revenue, arise out of the order of the CIT(A), Trivandrum in the income-tax assessment on Season Rubbers Ltd., Kanjirapally for the asst. yr. 1986-87.
2. In the assessee’s appeal the first ground is that the CIT(A) erred in not allowing the claim of deduction of a sum of Rs. 2,000 as liability towards audit fees. The assessee’s claim was that in accordance with the mercantile system of accounts followed by it the liability was allowable on due basis. The CIT(A) confirmed the disallowance on the view that the assessee’s claim was only a provision without any bill being raised against it. Before us, the assessee’s representative, K. I. John, Chartered Accountant submitted that the auditors were charging Rs. 2,000 as audit fees for every year and for the previous year ending on 31st March, 1986, also there was the liability for payment of audit fee to the same extent. According to the learned representative, the assessee made the provision for audit fees as in earlier years, as it was an ascertained liability and so in arriving at the profit of the year the liability was to be taken into account. Considering the facts of the case, we are inclined to agree with the learned representative that the CIT(A) is not justified in confirming the disallowance of the audit fees, as the claim is on account of an ascertained liability in the accounts maintained on mercantile basis. The deduction is allowable in computing the income of the previous year. The AO is accordingly directed to allow the deduction towards audit fees as claimed by the assessee.
3. In the next ground the assessee is aggrieved with the disallowance of depreciation in respect of machinery taken from Zodiac Rubbers. The assessee had taken over the assets of the partnership firm Zodiac Rubbers at revalued figures as recorded in the balance sheet. The controversy centered around the value at which the plant and machinery were to be depreciated. The view taken by the AO was that the assessee had arranged to put an entirely fictitious price on the assets just to enable it to claim higher depreciation at artificially inflated cost. The AO had allowed depreciation in the hands of the assessee at the written down value of such assets as appearing in the books of the erstwhile firm. It has been brought to our notice by the learned representative that in the appeal for the asst. yr. 1985-86 this Tribunal had upheld the assessee’s claim for depreciation with reference to the enhanced value of the assets at which the same was allotted to the assessee pursuant to the dissolution of the erstwhile firm of Zodiac Rubbers. Following the decision of the Tribunal in ITA No. 164/Coch/89, dt. 6th January, 1994, we hold that the assessee is entitled to depreciation on the enhanced value of the assets taken from Zodiac Rubbers.
4. The last ground in the assessee’s appeal is regarding the claim for deduction under s. 80G of the IT Act on a sum of Rs. 8,250. In computing the income for the asst. yr. 1986-87 the assessee claimed deduction of Rs. 8,250 at 50 per cent of a total sum of Rs. 16,500 by way of donations as under :
Rs.
(i) Donation to Kanjirappally Government Hospital Development Committee. 14,000
(ii) Donation to Kanjirappally Taluk Technical High School Welfare Committee. 2,500
16,500
The assessee’s claim was for deduction under s. 80G to the extent of 50 per cent on the amount donated in the previous year. The AO did not allow the claim for the reason that receipts had not been filed by the assessee. Before us it was submitted by the learned counsel that though in the course of the assessment proceedings the assessee’s claim was for deduction under s. 80G to the extent of 50 per cent, the assessee was actually entitled to deduction for the entire amount as it was expenditure incurred for the purpose of the assessee’s business. John explained that the assessee-company, which was carrying on business at Kanjirappally had to necessarily cooperate with the Department and payments made to the Hospital Development Committee and the Technical High School Welfare Committee were motivated by commercial consideration and so the assessee was entitled to the deduction under s. 37(1) of the IT Act. John further stated that as the claim is in respect of an amount which was considered by the AO, the assessee would be entitled to raise any new or additional point in respect of the claim for the first time in the appeal before the Tribunal. He also relied on the decision of the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT (1997) 223 ITR 101 (SC) to contend that commercial expediency of a businessman’s decision to incur an expenditure could not be tested on the basis of the strict legal liability to incur such expenditure. According to the learned representative, the decision taken by a businessman to incur the expenditure would have to be considered from the business point of view. It was contended that as the expenditure incurred by the assessee in making contributions towards the development of the hospital and the technical high school in the locality would be indirectly benefiting the assessee, the same could be viewed as an expenditure on business expediency entitled to deduction under s. 37.
5. K. R. Sudhakaran Pillai, the Departmental Representative, submitted before us that before the AO the assessee’s claim was that the payments were by way of donations only and deduction was claimed at 50 per cent of the total sum of Rs. 16,500. It was stated that the assessee had never claimed that the donation was in the nature of business expenditure. The Departmental Representative submitted that the assessee was now making a new claim that the contribution to the Hospital Development Committee and the School Welfare Committee were expenditure incurred for the purpose of the business. According to Sudhakaran Pillai, merely because the business was carried on in the same locality where the school and the hospital were functioning, it would not necessarily mean that the expenditure was incurred wholly and exclusively for the purpose of the assessee’s business. The Departmental Representative further stated that it was not the assessee’s claim that there would be any preference to the employees of the assessee’s factory in the treatment given in the Government hospital or to the children of the employees for admission in the Technical High School. No evidence was brought by the assessee to show that there was any ward reserved in the hospital for their employees or that reservation would be available to the children of the employees in the technical high school. It was contended that the decision in (1997) 223 ITR 101 (SC) (supra) relied on by the learned representative was distinguishable on facts, as in that case the assessee could not carry on the business without making the payment to the Andhra Pradesh Welfare Fund. It was stated that the assessee would be only entitled to the relief under s. 80G if the donations were proved to be satisfying the relevant conditions and also supported by necessary receipts.
6. Before the AO, the assessee’s claim was for deduction under s. 80G to the extent of 50 per cent of the sum of Rs. 16,500. The AO did not allow the claim for the reason that the receipts in support of the payments were not produced for verification. The learned representative submitted before us that the assessee was having the receipts and that the same were also produced before the AO. But now he claims that the assessee should be allowed deduction for the entire amount as a business expenditure under s. 37 of the IT Act. We agree that in respect of a claim raised before the AO it is open to the assessee to raise a new or additional point for the first time before the Tribunal. In the case of CIT vs. Smt. Khairunnisa Ebrahim (1993) 201 ITR 903 (Ker) the Kerala High Court held that an appellant could raise any new or additional point for the first time before the Tribunal even though it had not been raised in any form before the assessing authority or before the CIT(A). When once any such new or additional ground is raised, the Tribunal is duty bound to entertain that ground or render a decision thereon, either itself or by remanding the matter. The assessee’s claim is that they had to make payments towards the development of the hospital and the technical high school in the locality as an expenditure necessary for the purpose of their business. In the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT (supra) relied on by the learned representative of the assessee, the assessee was carrying on the business of exporting rice from the State of Andhra Pradesh. Rice could not be exported without obtaining a permit from the District Collector and permits were given only if payments were made to the Andhra Pradesh Welfare Fund, a welfare fund which had been established in pursuance of a scheme evolved by the Rice Millers Association in consultation with the District Collector. The ITO disallowed the deduction holding that the said payment was neither mandatory nor statutory, but was only discretionary. On a reference, the High Court held that the contribution to the Welfare Fund was a precondition for the grant of the export permits and therefore the assessee was right in contending that the contribution was a compulsory payment extracted from it as a price for granting export permits. The High Court, however, disallowed the deduction on the ground that the payment was opposed to public policy. Reversing the order of the High Court, the Supreme Court held that this was not a case where the assessee was paying a bribe to any person nor a case where money was contributed to any private fund or for the benefit of any individual which could be regarded as a form of illegal gratification. By a voluntary scheme with which the District Collector was associated the district welfare fund had been established for the benefit of the general public. The payment to such a fund which was openly made by all the millers and which fund was being used for public benefit could not be regarded as being opposed to public policy. Requiring payment to be made for a just cause which would entitle a businessman to obtain a licence or a permit could not be regarded as being against public policy. The Supreme Court held that the expenditure had been motivated purely by commercial consideration and so it was allowable as a deduction under s. 37 of the IT Act. It can be seen that the facts in that case decided by the Supreme Court are distinguishable, as rice could not be exported without a permit from the District Collector and the permit was given only on making a compulsory payment at 50 paise per quintal of rice, to the welfare fund. In the present case, it is not the claim of the assessee that for carrying on its business the assessee had to get any permit or licence or that the business could not be carried on without making payment to the Hospital Development Committee or to the Technical High School Welfare Committee. No material was placed before us to show that the assessee was required to make donations to the committee as a precondition for carrying on its business. The payment was also not shown to be at any fixed rate on the basis of production or processing of rubber in the assessee’s factory. It is also not the claim that employees of the assessee-company would be getting preferential treatment in the hospital or their children enjoyed any reservation in the admission in the technical school. The assessee has made donation as a voluntary payment for a humanitarian cause, but that does not qualify it as an expenditure laid out wholly and exclusively for the purpose of the business, to fall in s. 37(1) of the IT Act. In fact, there is no nexus between the voluntary payment in the nature of donation and the business of the assessee-company. In the above circumstances, we hold that the assessee is not entitled to claim deduction under s. 37(1) on the donations made to the Hospital Development Committee and the Technical High School Welfare Committee, as expenditure incurred for the purpose of business. As the payments were made by way of donation, the claim can be considered for deduction under s. 80G of the IT Act. The AO would allow the deduction in accordance with law after verification of the receipts which the assessee would produce before him.
7. In the appeal by the Revenue the first ground is that the CIT(A) erred in deleting the disallowance out of the claim of salary payment to the directors of the assessee-company. The assessee’s claim was for deduction of a total sum of Rs. 1,20,000 as remuneration to the directors. The AO made a disallowance of Rs. 45,000 following a similar decision taken by him in the asst. yr. 1985-86. The CIT(A) deleted the disallowance inconsistent with the view taken in the appellate order for the earlier year. The grievance of the Department is that the CIT(A) was not justified in deleting the disallowance as similar decision for the earlier year had not been accepted. It has been brought to our notice that the assessee’s claim for deduction of the entire remuneration of Rs. 1,20,000 was the subject-matter of appeal before this Tribunal for the asst. yr. 1985-86. In the order in ITA No. 168/Coch/1989, dt. 24th November, 1998 this Tribunal held that the CIT(A) was justified in allowing the claim of the assessee in respect of the payment of salary to the directors. In view of the decision taken for the earlier year by this Tribunal, we uphold the order of the CIT(A) and decide this ground against the Revenue.
8. The next ground by the Revenue is regarding the deduction in respect of the payment made to the group gratuity insurance scheme. The AO disallowed a sum of Rs. 47,860 claimed on account of the payment to the group gratuity insurance scheme. The disallowance was made for the reason that the gratuity fund was not approved for income-tax purpose. The CIT(A) deleted the disallowance on finding that the payment had been made to a scheme administered by a statutory body conforming to the conditions and stipulations laid down by law. Before us, it was submitted by the assessee’s representative that the Employees Group Gratuity Fund of the assessee-company was approved by the CIT by his order, dt. 29th November, 1994 w.e.f. 1st June, 1985. A copy of the order of the CIT granting approval under r. 2(1) of Part ‘C’ of the Fourth Schedule to the IT Act has been filed before us. In view of the fact that the gratuity fund maintained by the assessee has received approval w.e.f. 1st June, 1985, there is no justification for making the disallowance on the ground that the gratuity fund had not been approved. We are also in agreement with the CIT(A) that the payment made to the group gratuity insurance scheme with the LIC of India is entitled to the deduction. The AO has also not brought on record any valid reason for disallowing the claim for the deduction. Hence we uphold the order of the CIT(A) on this issue.
9. In the last ground in this appeal the Revenue is aggrieved on granting investment allowance under s. 32A of the IT Act. The assessee-company is carrying on business in centrifuging rubber latex. The AO had disallowed the claim of investment allowance on the view that the assessee does not qualify as an industrial company. The CIT(A) decided the matter in favour of the assessee following the decision of the Tribunal in the case of Kanam Latex Industries (P) Ltd. vs. ITO (1987) 29 TTJ (Coch) 507 : (1987) 22 ITD 355 (Coch). We find that the decision taken by the CIT(A) is in conformity with the judgment of the Kerala High Court as CIT vs. Kanam Latex Industries (P) Ltd. Accordingly, we confirm the order of the CIT(A).
10. In the result, the appeal filed by the assessee is partly allowed and the appeal by the Revenue is dismissed.