May 2008
S. 37(1) : (a) One-time charges paid by assessee company to NSDL for converting shares into demat form, allowed as revenue expenditure (b) Expenditure on installation of traffic signal for benefit of employees is allowable business expenditure (c) Deduc
By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
Reading Time 5 mins
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5 (2007) 109 TTJ (Bang.) 631
Infosys Technologies Ltd. v.
Jt. CIT
ITA No. 1022 (Bang.) 2003
A.Y. 1998-99. Dated : 7-4-2006
(a) S. 37(1) of the Income-tax Act, 1961 — Payment
made by assessee company as one-time charges to National Security Depository
Ltd. (NSDL) for converting shares of company from physical into dematerialised
form is allowable as revenue expenditure.
(b) S. 37(1) of the Income-tax Act, 1961 — Assessee
installed traffic signals at a circle in the vicinity of its office premises
to help its employees out of traffic jams, so that they may reach the office
in time, and handing over the same to traffic police, expenditure was
allowable being wholly and exclusively for assessee’s business.
(c) S. 80G read with S. 10A & S. 14A of the
Income-tax Act, 1961 — Deduction u/s.80G is allowable even if it is made out
of exempted income; S. 14A does not apply to S. 80G.
(a) Relying on the decisions in the cases of CIT v.
Tirrihannah Co. Ltd., (1992) 195 ITR 393 (Cal.) and Karjan Cooperative
Cotton Sales Ginning & Pressing Society v. CIT, (1992) 106 CTR (Guj.)
47/(1993) 199 ITR 17 (Guj.), the Tribunal allowed the assessee’s claim of
Rs.44.43 lacs paid to NSDL as one-time charges for converting the company’s
shares from physical to dematerialised form. The Tribunal, inter alia,
observed that :
(1) The dematerialisation has helped significantly in
reducing the administrative costs. Even if certain expenses result into some
benefit to the shareholders, the expenditure incurred in respect of or in
connection with the shareholders, is allowable as revenue expenditure.
(2) The expenditure can even be considered in the nature of
compliance with listing requirements. The CBDT by its Circular Letter
F.No.10/67/65-IT(A-1), dated 26th August 1965 opined that expenses incurred by
company on getting its shares listed in stock exchange should be considered as
laid out wholly and exclusively for the purpose of business and therefore
admissible as business expenditure u/s.37(1).
(3) The guidelines of SEBI mandate that the shares to be
traded in stock exchange can only be in dematerialised form. Thus, the charges
paid to NSDL, having not brought into existence any capital asset and being
for the purpose of efficient functioning of the business, are to be held as
business revenue expenses and allowable as such.
(b) The Tribunal allowed the expenditure of Rs.7.38 lacs
incurred by the assessee for installation of traffic signals as business
expenditure. The Tribunal relied on the decisions in the following cases :
(1) Atherton v. British Insulated & Helsby Cables Ltd.,
(1925) 10 Tax Case 155
(2) 191 (HL), Eastern Investment Ltd. v. CIT, (1951)
20 ITR 1 (SC); SCR 594
(3) CIT v. Chandulal Keshavlal & Co., (1960) 38 ITR
601 (SC)
(4) Mysore Kirloskar Ltd. v. CIT, (1987) 61 CTR (Kar.)
265; (1987) 166 ITR 836 (Kar.)
(5) CIT v. Royal Calcutta Turf Club, (1961) 41 ITR
414 (SC)
(6) CIT v. Madras Refineries Ltd., (2004) 266 ITR
170 (Mad.)
The Tribunal noted as under :
(1) As a result of getting repeatedly involved in traffic
jams and other hazards, the workers are a distressed lot. The incurrence of
expenditure was prompted solely with a view to benefit its employees. The
expenditure was incurred in the character as a trader and was prompted by
commercial expediency.
(2) What is to be seen is not whether it was compulsory for
the assessee to make the payment or not, but the correct test is that of
commercial expediency.
(3) As long as the payment which is made is for the
purposes of the business, and not disallowable specifically under the Act, the
same would be allowable as a deduction. If there is incidental benefit to a
party other than the assessee, it could not be relevant to decide whether the
expenditure is allowable or not.
(4) Since the expenditure was incurred to secure the
benefit to its employees, which in turn has also achieved its social objects,
it can still be considered as “wholly and exclusively for the purpose of
business” and, hence, allowable u/s.37(1).
(c) The donation of Rs.15.00 lacs made by the assessee was
paid out of ‘K’ unit, the profit of which was exempt u/s.10A. The Assessing
Officer and the CIT(A) disallowed deduction u/s.80G, holding that since the
expenditure is made out of exempt income, the issue is covered u/s.14A. the
Tribunal allowed the deduction and noted as under :
(1) The donation cannot be considered as ‘expenditure
incurred’ for the purpose of earning income, which is exempt under the Act.
(2) S. 10A is an exemption Section, whereas S. 80G is a
deduction Section and, therefore, there would be no double deduction of the
same item even if a benefit under both the Sections has been claimed. There
has been no double deduction in respect of the same item of expenditure.
(3) There is no stipulation in S. 80G that the donation has
to be made out of taxable income only for qualifying as a deduction.
(4) The provisions of S. 14A would not be applicable to a
deduction u/s.80G, as S. 14A is limited in its operation to chapter IV only,
where-as deduction u/s.80G falls under chapter VI-A and donation made does not
constitute expenditure. S. 14A applies to expenditure only.
(5) S. 80G would be available even when the said donations are made out of capital or gifts received or exempted income or income of earlier years.
