Business expenditure : S. 37 of Income-tax Act, 1961 : A.Y. 2004-05 : Assessee civil contractor : Constructed Hockey Stadium in the Collectorate Complex for securing DRDA contract : Expenditure on stadium is business expenditure allowable u/s.37.

[CIT v. Velumanickam Lodge, 317 ITR 338 (Mad.)]

The assessee, a civil contractor, wrote a letter to the
District Collector to secure the DRDA contract from the office of the District
Collectorate, expressing its willingness to construct a hockey stadium in the
Collectorate Complex and after receipt of the letter the DRDA contract was
awarded by the Collector to the assessee. In the previous year relevant to A.Y.
2004-05 the assessee constructed the hockey stadium and the expenditure on the
construction of the hockey stadium of Rs.24 lakhs was claimed as revenue
expenditure. The Assessing Officer disallowed the claim treating the
expenditure as capital expenditure. The Tribunal allowed the assessee’s claim
holding that the assessee volunteered to construct the hockey stadium for
generating goodwill and for promoting its business activities, especially
where such construction of the hockey stadium was for the welfare of the
public, which was not prohibited by law. The Tribunal observed that the mere
willingness expressed by the assessee to construct the hockey stadium in the
District Collectorate Complex for a value of Rs.24 lakhs could not be
construed as bribe to a person or as contribution for a private fund or for
the benefit of any individual which could be regarded as a form of illegal
gratification.

On appeal by the Revenue, the Madras High Court upheld the
decision of the Tribunal and held as under :

“The construction of the hockey stadium by the assessee
was in the regular course of business apart from the fact that such
construction came to be made on property belonging to the District
Collectorate meant solely for the use of public at large. Thus, the
investment made by the assessee for construction of the hockey stadium was
in the regular course of business and such investment could be construed as
one made with a view to enlarge its scope of business and could be termed as
business expenditure.”