{"id":59571,"date":"1996-10-25T00:00:00","date_gmt":"1996-10-24T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-sri-venkata-satyanaraynarice-vs-the-commissioner-of-on-25-october-1996"},"modified":"2018-02-12T07:17:17","modified_gmt":"2018-02-12T01:47:17","slug":"ms-sri-venkata-satyanaraynarice-vs-the-commissioner-of-on-25-october-1996","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-sri-venkata-satyanaraynarice-vs-the-commissioner-of-on-25-october-1996","title":{"rendered":"M\/S Sri Venkata Satyanaraynarice … vs The Commissioner Of … on 25 October, 1996"},"content":{"rendered":"
Supreme Court of India<\/div>\n
M\/S Sri Venkata Satyanaraynarice … vs The Commissioner Of … on 25 October, 1996<\/div>\n
Author: Kirpal<\/div>\n
Bench: J.S.Verma, B.N. Kirpal<\/div>\n
           PETITIONER:\nM\/S SRI VENKATA SATYANARAYNARICE MILL CONTRACTORS CO.\n\n\tVs.\n\nRESPONDENT:\nTHE COMMISSIONER OF INCOME-TAX,ANDHRA PRADESH II\n\nDATE OF JUDGMENT:\t25\/10\/1996\n\nBENCH:\nJ.S.VERMA, B.N. KIRPAL\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t\t  W I T H
\n\t CIVIL APPEAL NOS. 5625, 5626-27, 5628-29,
\n\t       5630,56-31, 5633, 5635, 5636,
\n\t\t  5637 and  5637A OF 1983
\n\t\t      J U D G M E N T
\nKIRPAL, J.\n<\/p>\n
     In respect\t of the assessment years 1971-72 and 1972-73
\nthe  appellant\tfiled  its  return  of\tincome\tand  claimed
\ndeduction for  the amounts  paid by it to the Andhra Pradesh
\nWelfare Fund,  West Godavari  (Branch Eluru)  as a  business
\nexpenditure under Section 37 (1) of the Income-tax Act, 1961
\n(for short ‘the Act’).\n<\/p>\n
     The case  of the  appellant was that it was carrying on
\nthe business  of exporting  rice from  the State  of  Andhra
\nPradesh.  This\trice  could  not  be  exported\twithout\t the
\nappellant’s obtaining  a permit from the District Collector.
\nThe permits were given only if payment was made to a welfare
\nfund which  had been  established. The\tIncome-Tax  Officer,
\nhowever, disallowed  the deduction  by holding that the said
\npayment was  neither mandatory,\t nor statutory\tbut was only
\ndiscretionary. He further observed that the welfare fund had
\nnot been  approved by  the Commissioner\t of Income-tax under
\nSection 80-G  of the  Act and, therefore, contribution to it
\ncould not be deducted.\n<\/p>\n
     The appeals filed by the appellant before the Appellate
\nAssistant  Commissioner\t met  with  no\tsuccess.  Thereupon,
\nsecond appeals\twere filed  before the\tIncome-tax Tribunal.
\nThe appeals  were heard\t by a  Full Bench  of  the  Tribunal
\nwhich, while  allowing the  appeals, came  to the conclusion
\nthat thought  there was\t no compulsion\ton the\tappellant to
\nmake  a\t  contribution\tto   a\twelfare\t  fund\t still\t the
\ncontributions made  in\tpursuance  of  a  scheme  which\t was
\nevolved by the Rice Millers Association in consultation with
\nthe District  Collector would  show that  an advantage would
\nensue on the payment of the contribution and, therefore, the
\ndeduction was allowable under Section 37 (1) of the Act. The
\nTribunal further  held that  such contributions could not be
\nheld to\t be opposed  to public\tpolicy. Against the order of
\nthe Tribunal  disposing of  the appeals the department filed
\nfour applications under Section 256 (1) of the Act whereupon
\nthe following question of law was referred:\n<\/p>\n
     “Whether on  the facts  and in  the
\n     circumstances  of\t the  case,  the
\n     Income-tax Appellate  Tribunal  was
\n     justified\t to    hold   that   the
\n     contribution made\tto  the\t welfare
\n     fund  was\tnot  opposed  to  public
\n     policy  and   that\t the   same  was
\n     motivated\tpurely\t by   commercial
\n     consideration,   and    that    the
\n     deduction\t was   allowable   under
\n     Section 37 (1)?”\n<\/p><\/blockquote>\n
At the\tinstance of  the assessee  the following question of
\nlaw was referred:\n<\/p>\n
     “Whether on  the facts  and in  the
\n     circumstances  of\t the  case,  the
\n     Appellate Tribunal was justified in
\n     law in  holding  that  the\t sum  of
\n     Rs.9,164\/-\t paid  by  the\tassessee
\n     towards   contribution    to    the
\n     District Welfare  Fund for\t getting
\n     permits  from   the  Government  of
\n     Andhra Pradesh  for export of rice,
\n     did   not\t  constitute\tbusiness
\n     expenditure within\t ‘he meaning  of
\n     Section 37\t of the\t Income-tax Act,
\n     1961?”<\/p><\/blockquote>\n
     The High  Court answered  the question of law in favour
\nof the\trespondent. It\treferred to the establishment of the
\nwelfare fund  and the payment of money which used to be made
\nand came  to the  conclusion that  the contribution  to\t the
\nwelfare fund  was a  pre condition  for the  grant of export
\npermits\t and,\ttherefore,  the\t  appellant  was   right  in
\ncontending that\t the contribution  was a  compulsory payment
\nextracted from\tit as  a price\tfor granting export permits.
\nHigh Court,  however, disallowed  the deduction by coming to
\nthe conclusion\tthat the  payment of this amount was opposed
\nto public policy.\n<\/p>\n
     It is contended by Sh. A. Subb Rao, learned counsel for
\nthe appellant that on the facts as found by the Tribunal the
\nappellant was  entitled to deduction under Section 37 (1) of
\nthe Act.  He further  submitted that the High Court erred in
\ncoming to  the conclusion  that the  contribution which\t was
\nmade by\t the millers  like the appellant to the welfare fund
\ncould be  equated with the giving of a bribe and, therefore,
\nopposed to  public policy,  as was sought to be suggested by
\nthe High  Court while holding that the said contribution was
\ncontrary to public policy.\n<\/p>\n
     The district welfare fund had been established pursuant
\nto a  scheme which  had been  evolved by  the  rice  millers
\nassociation with  the District\tCollector. According to this
\neach member  of the  association was to deposit an amount of
\nfifty paise per quintal of rice if he proposed to export the
\nsame from Andhra Pradesh. This deposit was to be made in the
\nAndhra Bank.  The application  for  the\t export\t permit\t was
\nrequired too be made in a form wherein\tthe applicant had to
\nstate the  amount of  contribution deposited by him, giving`
\nthe particulars\t of the\t bank, the  challan number  and\t the
\ndate. The  High Court  referred to the Letter written to the
\nAppellate Assistant  Collector by  the Collector in which it
\nwas stated as follows:\n<\/p>\n
     “With     reference      to     the
\n     representation of the Secretary the
\n     West Godavari District Rice Millers
\n     Association, Tadepallingudem,  I am
\n     to inform\tyou that Welfare Fund at
\n     Rs.0.50 paise  per quintal is being
\n     collected in  respect of  all  rice
\n     and broken\t rice permits  issued on
\n     trade to trade accounts.”\n<\/p>\n
A similar  letter had  also been  written to  the Income-tax
\nOfficer at  the time of assessment. From the aforesaid facts
\nthe High  Court came to the conclusion that the contribution
\nwas a  compulsory one  and was\tbeing collected from all the
\nexporters  of\trice  from  the\t state\tof  Andhra  but\t the
\ncontribution so made, which was linked with the obtaining of
\npermits, was  opposed to  public policy and, on this ground,
\ncould not  be allowed as a deduction under Section 37 (1) of
\nthe Act.\n<\/p>\n
     The principles  for determining  whether such a payment
\ncan be\tregarded as  being allowable  as a  business expense
\nare, in\t our opinion,  well settled,  As long  ago as in the
\ncase of Atherton Vs. British Insulated\t& Helsby Cables Ltd.
\n(10 TC\t155 191\t (HL) it  was observed\tthat “A sum of money
\nexpended, not  of necessity  and with a view to a direct and
\nimmediate benefit  to the  trade, but voluntarily and on the
\ngrounds of  commercial expediency and in order indirectly to
\nfacilitate the\tcarrying on  of the  business,\tmay  yet  be
\nexpended wholly\t and exclusively for the purposes of trade.”
\nThe aforesaid  observation was\tquoted with approval by this
\nCourt in Eastern Investments Ltd. Vs. Commissioner of Income
\nTax, West  Bengal ([1951] SCR 594). Again in the case of The
\nCommissioner of\t Income-tax, Bombay  Vs. Chandulal Keshavlal
\nand Co.,  Petlad (1960\t[3] SCR 38) a similar question arose
\nfor consideration.  The assessee  who was managing agent was
\nentitled to commission. It, however relinquished part of the
\ncommission which  was receivable  from the managing company,
\ninter alia,  for the  reason that the financial condition of
\nthe managing  company was unsatisfactory. The question arose
\nwhether\t the   amount  relinquished  was  deductable  as  an
\nexpenditure or\tnot. While upholding the claim for reduction
\nthis Court  observed at page 50 that “Thus in cases like the
\npresent one  in order  to justify deduction the same must be
\ngiven up  for reasons  of commercial  expediency; it  may be
\nvoluntary, but\tso long as it is incurred for the assessee’s
\nbenefit the  deduction would be claimable.” What, therefore,
\nis to  be seen\tis not\twhether it  was compulsory  for\t the
\nassessee to  make the payment or not but the correct test is
\nthat of\t commercial expediency. As long as the payment which
\nis made\t is for the purpose of the business, and the payment
\nmade is not by way of penalty for infraction of any law, the
\nsame would be allowable as a deduction.\n<\/p>\n
     The Court\tin the\tcase of\t Commissioner of Income-tax,
\nGujarat Vs. S.C. Kothari ([1971] 82 ITR 794) was considering
\na case\twhere the  assessee had\t suffered loss in an illegal
\ntransaction and the question arose whether the same could be
\nset off under Section 24 of the Income-tax Act, 1922 against
\nthe profits  and gains\tof  speculative\t transaction.  While
\nallowing the  set off  it was observed that if a business is
\nillegal, neither  the profits earned nor the losses incurred
\nwould be  enforceable in  law but  that does  not  take\t the
\nprofits out  of the  taxing statute.  Similarly the taint of
\nillegality of  the business  cannot detract  from the losses
\nbeing taken  into account  for computation  of\tthe  amounts
\nwhich can  be subjected\t to tax\t under Section 10 (1) of the
\n1922 Act.  The tax  collector, it  was observed,  cannot  be
\nheard to  say that  he will  bring the gross receipts to tax
\nwithout deducting  losses and the legitimate expenses of the
\nbusiness.\n<\/p>\n
     Again in  the case\t of Commissioner  of Income  tax Vs.
\nPiara Singh ([1980] 124 ITR 40) a question arose with regard
\nto the\tloss sustained\tby an assessee in the carrying on of
\nan illegal  business.  The  respondent\ttherein\t carried  on
\nsmuggling activities  and  was\tapprehended  by\t the  Indian
\npolice\twhile\tcrossing  the\tborder\tinto   Pakistan\t and
\nRs.65,000\/- in\tcurrency notes were recovered from him. This
\nmoney was  being taken\tto  Pakistan  for  the\tpurposes  of
\npurchasing gold\t which was  to be  smuggled into India. This
\namount was confiscated. Thereupon the income-tax authorities
\ncame to\t the conclusion\t that the assessee, who was carrying
\non the\tbusiness of  smuggling, was liable to income tax and
\nhe was\taccordingly assessed  to tax.  The assessed  claimed
\ndeduction under\t Section 10  of the  1922 Act of the loss of
\nRs. 65,000\/-  which had\t been  confiscated  by\tthe  customs
\nauthorities. While  allowing this deduction it was held that
\nthe carriage  of the currency notes across the border was an
\nessential part\tof the\tsmuggling operation and detection by
\nthe customs  authorities and  consequent confiscation  was a
\nnecessary incident  of the  said business  and constituted a
\nnormal feature of such an operation. The confiscation of the
\ncurrency notes\twas a  loss which  sprang directly  from the
\ncarrying on of the business and was allowable as a deduction
\nunder Section 10 of the 1922 Act.\n<\/p>\n
     Even though  this Court has in the cases of Piara Singh
\nand S.C.  Kothari (supra)  held\t that  loss  suffered  while
\ncarrying on illegal business is allowable as a deduction, in
\nthe present  case we  find that\t the contribution  which was
\nmade by\t the  appellant\t could\tunder  no  circumstances  be
\nregarded as  illegal payments or payments which were opposed
\nto public  policy. This is not a case where the assessee was
\npaying any  bribe to  any person  nor is  this a  case where
\nmoney was  being contributed  to any private fund or for the
\nbenefit of  an individual  which could be regarded as a form
\non illegal  gratification. By a voluntary scheme, with which
\nthe District  Collector was associated, the district welfare
\nfound had  been established  for the  benefit of the general
\npublic. The payment to such a found which was openly made by
\nall the\t millers and  which fund  was being  used for public
\nbenefit cannot\tbe  regarded  as  being\t opposed  to  public
\npolicy. Requiring  payment to be made for a just cause which
\nwould entitle  a businessman  to obtain\t a licence or permit
\ncannot be regarded as being against the public policy.\n<\/p>\n
     A\tcase   similar\tto  the\t present  one  came  up\t for
\nconsideration before  the Madhya  Pradesh High\tCourt in the
\ncase of\t Additional Commissioner  of Income  tax  vs.  Kuber
\nSingh Bhagwandas  ([1979] 118  ITR 379).  In this  case\t the
\nGovernment  of\t Madhya\t Pradesh  had  under  the  Essential
\nCommodities Act,  1955 passed  an order\t which, inter  alia,
\nprohibited  any\t person\t from  exporting  gram\tfrom  Madhya
\nPradesh except\tunder and  in  accordance  with\t the  permit
\nissued by  the State  Government. The  Madhya  Pradesh\tAnaj
\nVyapari Maha  Sangh, the association of food grain merchants
\nof  the\t state,\t addressed  a  representation  to  the\tFood
\nMinister to  the effect\t that the  stock of gulabi chana and
\nother pulses  was steadily  deteriorating in quality because
\nof want\t of market.  The Chief\tMinister of  Madhya  Pradesh
\nthereupon informed  the President of the Maha Sangh that the
\nGovernment had\tdecided to  allow liberally  permits for the
\nexport of gulabi chana and pulses outside the State., In the
\nsame letter  the Chief Minister brought to the notice of the
\ntrading\t community   that  the\tkisans\tand  labourers\twere
\nundergoing untold  hardship on account of drought conditions
\nresulting from\tthe failure  of\t the  monsoon  and,  as\t the
\nmerchants were\tbound to  earn rich  profits, he appealed to
\nthe trading  community that they should contribute a portion
\nof such profits to the Chief Minister’s Drought Relief Fund.
\nThis was followed by a letter written by the Joint Secretary
\nto the\tMaha Sangh  asking the merchants to deposit Rs. 30\/-
\nper quintal  for the  export of gulabi chana and Rs. 5\/- per
\nquintal for  the export\t of pulses  into the  State Bank  of
\nIndia or the State Bank of Indore to the credit of the Chief
\nMinister’s Drought  Relief  Fund  and  to  obtain  duplicate
\nreceipt from  the bank.\t It was\t further directed  that\t the
\noriginals of  such receipts  were to  be sent along with the
\nduly filled  in application  forms for\tpermits to  the Maha
\nSangh at  Bhopal. Members  were also  required to send fifty
\npaise per quintal for meeting the administrative expenses of
\nthe said  Maha Sangh.  On the  application being received in
\naccordance with\t the  aforesaid\t documents  the\t Maha  Sangh
\nforwarded  the\t same,\tincluding  the\tapplication  of\t the
\nassessee, to the relevant authorities of the Food Department
\nwhereupon permits  for export  of gulabi chana or pulses, as
\nmentioned in  the application, were issued to the merchants.
\nIn his income tax return the assessee claimed a deduction on
\nthe contribution  so made  to the  Chief Minister’s  Drought
\nRelief Fund.  The contention of the assessee was that permit
\nfor exporting gulabi chana could not be obtained without the
\nmaking of  such a contribution and, therefore, making of the
\nsaid donation should be allowed as a deduction under Section
\n37 (1)\tof the\tAct.   The Income-tax  Tribunal\t upheld\t the
\ncontention and\tat the instance of the Revenue reference was
\nmade to the High Court under Section 256 (1) of the Act.  An
\nearlier reference,  on the same issue, had been decided by a
\nDivision Bench\tof the Madhya Pradesh High Court in the case
\nof Additional  Commissioner of\tIncome-tax Vs.\tBadrinarayan
\nShrinarayan Akodiya  ( [1975])\t101 ITR\t 817 (MP) ).  As the
\ncorrectness of\tthe same  was challenged, the Division Bench
\nreferred Kuber\tSingh’s case to a Full Bench.  While holding
\nthat the  decision  in\tAkodiya’s  case\t was  not  correctly
\ndecided the  Full Bench\t held that  any normal\ttrader would
\nhave realised  that there  was greater prospect of getting a
\npermit for carrying on the export business in case he made a
\ndonation as  requested by the Chief Minister.  The merchants
\nhad made  the donations as a matter of commercial expediency
\nto facilitate  the obtaining of permits which were necessary
\nfor carrying   on  the export  trade.\tThe  nature  of\t the
\nexpenditure was\t such that  benefit  to\t a  third  party  or
\ncharity had  resulted but  that did  not disqualify  it from
\nbeing an  expenditure incurred\twholly and  exclusively\t for
\npurposes of  business.\t The Full  Bench distinguished\tthis
\nCourt’s decision  in Haji  Aziz and  Abdul Shakoor Bros. Vs.
\nCIT (  [1961] 41  ITR 350  ) by\t observing that\t in the case
\nbefore it  the donations  which were made by the traders did
\nnot contravene\tany law\t and nor  were the donations made as
\npenalty for infraction of any law.  It, therefore, concluded
\nthat the  Tribunal was\tright in  holding that\tthere was  a
\ndirect nexus between the assesses business and the donations
\nmade to\t the Chief  Minister’s Drought\tRelief Fund and that
\nthe donations were allowable under Section 37 (1) of the Act
\nand as\texpenditure  incurred  wholly  and  exclusively\t for
\npurposes of the assessee’s business.\n<\/p>\n
     In our  opinion the  decision  in\tKuber  Singh’s\tcase
\ncorrectly  spells   out\t the   principle  relating   to\t the
\nallowability of such an expense which has been incurred with
\na view to the promotion of an assessee’s business.\n<\/p>\n
     Same principle  as was  followed in  Kuber Singh’s case
\nhad been  applied, in  somewhat different  circumstances, by
\nother High  Court and  the same\t has been  approved by\tthis
\nCourt.\t In Commissioner  of Income-tax,  Orissa Vs.  Middle
\nEast Construction  Equipments (\t [1979] 117  ITR 382  )\t the
\nOrissa High Court had to deal with a case where the assessee
\ncarried on  the business of supplying machines to Government
\nDepartments.\t The  State   Government  decided   to\tgive
\npreferential treatment\tin the\tmatter of  placing of orders
\nfor supply  of materials to parties holding State Government
\nLoan Bonds.   The  assessee borrowed  money for\t purchase of
\nGovernment Loan Bonds and claimed deduction of interest paid
\non such\t borrowed money.   The Tribunal found that the bonds
\nhad been  purchased in\torder to  boost\t the  sales  of\t the
\nassessee and  that the Bonds, which were sold within a year,
\nhad been held as investment and had allowed the claim of the
\nassessee.   On reference  being made  at the instance of the
\nRevenue the  Orissa High Court allowed the said deduction by
\nobserving that\tthe loan had been taken for purchasing bonds
\nfor the\t purpose of  boosting up  of the assessee’s business
\nand,  therefore,   the\tpayment\t  of  interest\twas  rightly
\nallowable as  a reduction.   A\tsimilar question  once again
\narose  before\tthe  Orissa   High  Court  in  the  case  of
\nCommissioner  of   Income-tax  Vs.   Industry  and  Commerce
\nEnterprisers (P)  Ltd.\t The assessee  which  had  purchased
\nGovernment Loan\t Bonds had  sold the same and had incurred a
\nloss.\tThis loss  was claimed as a deduction.\tThe Tribunal
\nheld that  the\tassessee  had  acquired\t business  from\t the
\nGovernment by  the purchase  of the securities and, although
\nthe relevant  correspondence did  not speak of any condition
\nprecedent to  the grant of the business to the assessee, yet
\nbecause of  the coincidence  of the  date of purchase of the
\nbonds and the business allotted to the assessee which was of
\nan equal  sum, there was a direct nexus between the business
\nacquired by the assessee and the purchase of the securities.
\nThe Tribunal  accordingly allowed  the said deduction.\tOn a
\nreference being\t made the  High Court upheld the decision of
\nthe Tribunal  which had\t allowed the said deduction.  Before
\nthe Madras High Court also a similar question arose where an
\nassessee, carrying on road transport business, subscribed to
\nGovernment Bonds  carrying 4.5\tper cent  interest.    There
\nBonds were  purchased at  the instance of the Road Transport
\nAuthorities and\t for this  purpose the assessee had borrowed
\nmoney at  the rate of 10 per cent.  This was done, according
\nto the\tassessee, with\ta view\tto keep\t the road  transport
\nauthority in  good humor  under the bona fide belief that it
\nwas necessary  to do  so in  order to carry on its business.
\nSubsequently, the  assessee sold  the bonds  at\t a  loss  of
\nRs.3127\/-and claimed  this amount  as a business loss.\tThis
\nclaim was  allowed by  the Tribunal who found that the motor
\nvehicle inspector had handed over the necessary forms to the
\nassessee for  purchasing Government Bonds, that the assessee
\nwas under an obligation to purchase the Bonds for the smooth
\nrunning\t of  the  transport  business  especially  when\t the
\nmandate for  purchase of  the Bonds  came from the inspector
\nand, therefore,\t the loss was allowable as deduction.  While
\nupholding the decision of the Tribunal the Madras High Court
\nobserved “subscribing  to Government Loans as in the present
\ncase, is  not, in our opinion, opposed to public policy, and
\nwe are\tof the\topinion that  the Tribunal has rightly found
\nthat the  assessee was obliged to sell the Bonds before they
\nbecame ripe from payment only to stop incurring further loss
\nas the\tmoney with which the subscription for the Government
\nBonds had been made had been borrowed by the assessee from a
\nbank at\t 10  per  cant\tinterest  while\t the  Bonds  carried
\ninterest only  at 4.5  per cant.”   A  minor question  again
\narose for  consideration before\t the Madras  High  Court  in
\nCommissioners  of  Income-tax  Vs.  Dhandayuthapani  Foundry
\n(Private) Ltd.\t ( [1980] 123 ITR 709 ).  In that case, as a
\nresult of  the pursuation  of the  Sales Tax Authorities who
\nwere making assessments on the assessee and who also had the
\ncontrol over  From No.XX  which are  delivery  notes  to  be
\nissued by  them for  the despatch of goods, the assessee was
\nobliged\t to  subscribe\tto  certain  government\t securities.
\nHowever, instead of directly purchasing these securities and
\nthen selling them, the assessee paid certain margin money to
\nthe brokers  which represented\tthe difference\tbetween\t the
\nissue price  and the  market price  for the securities.\t The
\nassessee claimed a loss of Rs.1900\/-.  This claim was upheld
\nby the\tAppellate Assistant  Commissioner and  the Tribunal.
\nThe High  Court following its decision in the case of B.M.S.
\n(P) Ltd.  (supra) upheld the decision of the Tribunal to the
\neffect that  these securities  were purchased  and  sold  in
\norder to  retain the  goodwill of  the Sales-tax Authorities
\nwhich was necessary and essential for the smooth carrying on
\nof the business by the assessee.\n<\/p>\n
     The aforesaid  decisions of  the Orissa  High Court  in
\nindustry and  Commerce Enterprisers  (P)  Ltd.\tand  of\t the
\nMadras High  Court in  B.M.S. (P)  Ltd. and  Dhandayuthapani
\nFoundry cases (supra) were cited with approval by this Court
\nin M\/s\tPatnaik and Co. Ltd. Vs. Commissioner of Income Tax,
\nOrissa (  [1986] 4  SCC 16 ).  In that case the assessee was
\ntold  that   if\t he   subscribed  for  the  Government\tloan
\npreferential treatment\twould be grated to it in the placing
\nof  orders  for\t motor\tvehicles  required  by\tthe  various
\ngovernment  departments\t  and  the  assessee  would  further
\nbenefit by  an advance\tfrom the  Government upto  fifty per
\ncent of\t the value of the orders placed.  The Tribunal found
\nthat the  investment in the purchase of Government Bonds was
\nmade in\t order to  boost its  business and as the investment
\nhad been  made by  way\tof  commercial\texpediency  for\t the
\npurpose of  carrying on\t its business,\tthe loss suffered by
\nthe assessee  on the sale of the bonds must be regarded as a
\nRevenue loss.  The High Court, however, decided the question
\nin favour  of the  Revenue.  While reversing the judgment of
\nthe High  Court, and upholding the conclusions arrived at by
\nthe Tribunal,  this Court  held that the investments made by
\nthe assessee  were not a capital asset and the loss suffered
\nby it  was allowable  as a  reduction.\t It then observed as
\nfollows:\n<\/p>\n
     “It was  held by  the  Orissa  High
\n     Court  in\t CIT  V.   Industry  and
\n     Commerce Enterprisers (P) Ltd., and
\n     by the  Madras High  Court in Addl.
\n     CIT Vs.  B.M.S. (P)  Ltd. and again
\n     in CIT  V. Dhandayuthapani\t Foundry
\n     (P)  Ltd.\t that  where  government
\n     bonds or  securities were purchased
\n     by the  assessee  with  a\tview  to
\n     increasing his  business  with  the
\n     government or  with the  object  of
\n     retaining\tthe   goodwill\tof   the
\n     authorities for  the purpose of his
\n     business, the  loss incurred on the
\n     sale of  such bonds  or  securities
\n     was allowable as a business loss.”<\/p><\/blockquote>\n
     From the  aforesaid  discussion  it  follows  that\t any
\ncontribution made  by an  assessee to a public welfare found
\nwhich is  directly connected or related with the carrying on
\nof the\tassessee’s business  or which results in the benefit
\nto  the\t assessee’s  business  has  to\the  regarded  as  an
\nallowable deduction under Section 37 (1) of the Act.  Such a
\ndonation, whether  voluntary  or  at  the  instance  of\t the
\nauthorities concerned,\twhen  made  to\ta  Chief  Minister’s
\nDrought Relief\tFund or\t a District Welfare Fund established
\nby the\tDistrict Collector or any other Fund for the benefit
\nof the\tpublic and  with a  view to  secure benefit  to\t the
\nassessee’s business,  cannot be\t regarded as payment opposed
\nto public  policy.   It is  not as  if the  payment  in\t the
\npresent case  had been\tmade as\t in  illegal  gratification.
\nThere is  no law   which  prohibits the\t making\t of  such  a
\ndonation.   The mere  fact that\t making of  a  donation\t for
\ncharitable or  public cause or in public interest results in
\nthe government\tgiving patronage or benefit can be no ground
\nto deny\t the assessee  a  deduction  of\t that  amount  under
\nSection 37  (1) of  the Act  when such payment had been made
\nfor the purpose of assessee’s business.\n<\/p>\n
     For the  aforesaid reasons\t we hold that the conclusion
\nof the\tHigh Court  arrived at\tin the present cases was not
\ncorrect.   The questions  of law referred to by the Tribunal
\nare accordingly\t answered in  favour of\t the appellants\t who
\nwill also be entitled to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India M\/S Sri Venkata Satyanaraynarice … vs The Commissioner Of … on 25 October, 1996 Author: Kirpal Bench: J.S.Verma, B.N. Kirpal PETITIONER: M\/S SRI VENKATA SATYANARAYNARICE MILL CONTRACTORS CO. Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX,ANDHRA PRADESH II DATE OF JUDGMENT: 25\/10\/1996 BENCH: J.S.VERMA, B.N. KIRPAL ACT: HEADNOTE: JUDGMENT: W I T H […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-59571","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nM\/S Sri Venkata Satyanaraynarice ... vs The Commissioner Of ... on 25 October, 1996 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ms-sri-venkata-satyanaraynarice-vs-the-commissioner-of-on-25-october-1996\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M\/S Sri Venkata Satyanaraynarice ... vs The Commissioner Of ... on 25 October, 1996 - 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