Sandur Manganese And Iron Ores Ltd. vs. CIT [2012] 349 ITR 386 (SC)
The assessee, a limited company engaged in the business of extraction of manganese and iron ore had claimed in the return of income filed for the assessment years 1985-86, 1986-87, 1989-90, 1990-91 and 1992-93, deductions for the payments made to Sandur Residential School and Sandur Educational Society.
In the orders of assessments passed for the assessment years 1985-86, 1986-87, 1989-90, 1990-91 and 1992-93, the Assessing Officer disallowed the deductions claimed for the payments made to Sandur Residential School and Sandur Educational Society by applying the provisions of section 40A(9) of the Act r.w.s. 40A(10) of the Act.
The assessee after exhausting the remedy of the first appeal before the Appellate Commissioner, filed the second appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the deductions claimed, on the ground that the expenses had been incurred fully and exclusively for the purpose of business and welfare of the employees’ children. Therefore, the deduction was allowable for the assessment year 1983-84 in view of the non-obstante clause of section 40A(10) of the Act and for the assessment years 1985-86 till 1992-93 in view of section 37(1) of the Act. The Tribunal placed reliance on the decision in the case of Mysore Kirloskar Ltd. vs. CIT [1987] 166 ITR 836 (Karn).
The Tribunal inter alia referred the following question of law to the High Court for its consideration and opinion.
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in allowing the payments made by the assessee to Sandur Residential School and Sandur Educational Society as business expenditure for the assessment years 1985-86, 1986-87, 1989-90, 1990-91 and 1992-93?” The High Court held that a reading of the Budget speech of the Finance Minister would indicate that under the provisions of section 40A(9) of the Act, no deduction is permissible on the contribution made by the corporate bodies to the so-called welfare funds, except the contributions made to such funds which are established under the statute or an approved provident fund, superannuation fund or gratuity fund.
The High Court did not accept the view expressed by the Kerala High Court in P. Balakrishnan, CIT v. Travancore Cochin Chemicals Ltd. (2000) 243 ITR 284 (Ker) and by the Bombay High Court in CIT v. Bharat Petroleum Corporation Ltd. (2001) 252 ITR 431 (Bom) in view of the decision of the Supreme Court in Larsen and Toubro Institute of Technology v. All India Council for Technical Education, AIR 1995 (SC) 1585. The High Court answered the question in favour of the Revenue and against the assessee.
On an appeal to the Supreme Court, on the issue of the allowability of the sum spent as welfare expenses towards providing education to its employees’ children, the Supreme Court observed that section 40A(9) was inserted as a measure for combating tax avoidance. The application of section 40A(9) would come into play only after the assessee has established the basic facts. According to the Supreme Court, the facts were not clear inasmuch as the assessee had made payments to other educational institutions and also not only to the school or the society promoted by the assessee. According to the Supreme Court, from each assessment year, the Tribunal would have to record a separate finding as to whether the claim for deduction was being made for payments to the school promoted by the assessee or to some other educational institutions/ schools and thereafter apply section 40A(9). The Supreme Court accordingly restored the matter to Tribunal, for de novo consideration for each of the assessment years and directing it to give a clear bifurcation between payments made by the assessee to Sandur Residential School and Sandur Education Society and payments made to schools other than the above two institutions. The Supreme Court however, refrained from going into the scope and applicability of section 40A(9) in the absence of proper facts.
