Jeevan Reddy, J. -
(1.) THE assessee in these five referred cases are dealers in paddy, rice, broken rice, etc., in West Godawari District. THEy are millers as well. In their returns filed for the assessment year 1973-74, they claimed deduction of the amounts paid by them to the Andhra Pradesh Welfare Fund, West Godawari District (Branch Eluru), as business expenditure, under s. 37(10 of the I. T. Act, 1961. THE assessee case was that it was an expenditure wholly and exclusively incurred in the course of business and that, unless the said payment to the welfare fund was made no permits for export of boiled rice to the State of Kerala would be issued by the District Collector. THE ITO, however disallowed the deduction holding that the said payment was neither mandatory nor statutory, but only discretionary. He observed that the expenditure could not be said to have been incurred wholly and necessarily for the purpose of the assessees' business. He took note of the fact that the said welfare fund was not approved by the Commissioner of Income-tax under s. 80G of the Act. On appeal. it was again contended by the assessee that the appellants could not be carry on their business without incurring the said expenditure and, therefore, it must be held to be deductible under s. 37(1) of the ACt. THE AAC rejected this plea on the basis of the statement made by the chartered accountant for the welfare fund, to the effect that there was no compulsion from the authorities in make any payment to the welfare fund and that it was thoroughly voluntary. He referred to certain instance where permits were granted without the dealers making such contribution to the welfare fund. THE AAC further observed that the said contribution were made by the several members of the Rice Millers Association in pursuance of a scheme evolved by them in consultation with the District Collector, accounting to which understanding, each members of the Association was to deposit an amount of 0.50 paise per quintal of rice he proposed to export to Kerala. This deposit had to be made in the Andhra Bank. THE application for export permit had to be made3 upon a form evolved by the Association, where in the applicant stated, inter alia, th3e amount of the contribution deposited by him, giving the particulars of the bank, the challan number, and the date. THE AAC also relied upon a latter of Collect, which we shall refer to presently, and held, that these payments were voluntary payment, and not compulsory payments. THE assessee, thereupon, preferred appeal to the Income-tax Appellate Tribunal.
(2.) IN some of the appeals filed by the assessee, the Tribunal took the view that the contribution made to the welfare fund was a permissible deduction, while in some other appeals it took a contrary view. R. C. No. 166/1978 arises from one such decision of the Tribunal in I. T. A. No. 124 6/Hyd/74-75, in which the Tribunal held that the contribution made to the welfare fund could not be allowed as a business deduction, because the contribution was made with the object of gaining an advantage, and was thus opposed to public policy. When certain other appeals preferred by the assessees came up for hearing before the assessee later, they were heard by a FUll Bench consisting of these members, which was constituted in view of the conflict between the two Benches the Tribunal. The Full Bench of the Tribunal held that, (i) there was no compulsion upon the assessee to make contribution to the welfare fund : (ii) the contributions were made in pursuance of a scheme evolved by the Rice Millers Association, in consultation with the District Collector; ".... the nexus between the payment could be linked with successful fulfillment of the Association scheme and consequently the members would get an added advantage and, therefore, viewed from that angle the importance e and image of the Associations goes up and the payment satisfies the tests laid down in section 37(1) "; and (iii) that such contributions cannot be held to be opposed to policy, inasmuch as the benefit which was expected by the members of the Association, wa only because of, and thought the Association role in the organisation of the Scheme,. R. Cs. Nos 20/979, 73/1979, 74/1979 and 85/1979 arise from the orders of the Full Bench holding that the contribution are deductible an business expenditure
The question, referred to us in R. Cs. Nos., 20,73,74 and 85 of 1979, at 5th case, the reference is at the instance of th
"whether, on the facts and in the circumstance of the case, the Income-tax |appellate Tribunal, was justified to hold that the contribution made to the welfare fund was not apposed to public policy and that the same was motivated purely by commercial consideration, and that the deduction was shoe allowable under section 37(1)?"
While the question referred in R. C. No. 166/1978, at the instance of the assessee, is :
"|Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the sum of Rs. 9,164 paid by the assessee towards contributions to the District Welfare Fund for getting permits form the Government of Andhra Pradesh for export of rice, did not constitute business expenditure within the meaning of section 37 of the Income-tax Act, 1961 ?"
\thus,. the question referred in all these referred cases, are identical, though in the first four cases the reference is made at the instance of Department while in 5th case, e reference is at the instance of the assessee.
(3.) MR. M suruyanarayana Murthy, the learned standing counsel for the Revenue, contended that, if the contributions to the welfare fund are treated as voluntary, as held by the Full Bench of the Tribunal, then of would be a case where there is no nexus between the contribution made and the business of the business. if, on the other had, s, the contribution is held to be compulsory and, therefore, expedient in e interest of the assessee business, it must be held to be opposed to public policy and cannot, therefore be allowed as business expenditure under s. 37. He submitted that the assessee contributed to the welfare fund only with a view to assure themselves of the export permits,. The latter of the collector, learned counsel submitted, makes it clear that all those who wanted export permits were required to contributes to the welfare fund and at those oho did nto contribute did not stand the chance of getting export permits except, perhaps, a couple of co-operative societies which, on account of their by decision in Addl. CIT v. Badrinarayan Shrinarayan Akodiya , as representing the correct statement of law on the subject, notwithstanding the fact that the said decision has been disapproved by a subsequent Full Bench of e same count in Addl. CIT v. Kuber Sings Bhagwandas . Reliance was also placed by him upon e decision in : (i) Delhi Cloth & \general Mills Co. Ltd v. CIT , (ii) Southern and Rajamani Transports (P.) Ltd. v. CIT , (iii) Indian Steel and Wire Products Ltd. v.  69 ITR 379 (Cal) and (iv) Indian Iron & Steel Co. Ltd. In re  27 Comp Case 361 (cal).
On the other hands, it is contended by Sri Y. V. Anjaneyulu, who led the argument on behalf of the assessee, firstly, that these payment were compulsory exactions; unless these payments were made, the District Collectors refused to issue the 4export permit. An person intending to export boiled rice to Kerala was obliged to contribute 0.50 paise per quintal to the welfare fund, and mention the and only on being satisfied of such payments, wee export, permits issued. He submitted that these payments must, therefore, be held to be made in the interest of the assessee business, and are deductible as such under s. 37. Secondly and alternately, the counsel that the payment were voluntary, as found by the Tribunal and inasmuch as these payments though not necessary, were warranted by business expediency, they are entitled to be deducted as such. He contended that once the assessee establish that a particular expenditure incurred by them wa actuated by business expediency, it is liable to be deducted as such, and no further question arises whether such payment is opposed to any law, or is opposed to public policy. He submitted that the argument that the said contribution were opposed to public policy was brought in for the first time at the stage of Tribunal and that the particular ground of public policy, which is said to have been violated, had not been specified either by the Department, or by the Tribunal, in cases where it held such payments as opposed to public policy. Learned counsel stressed that there was no material before the Tribunal nor before this court, upon which the question whether the contributions are opposed to public policy or not can be decided properly and fully. |Counsel, also submitted that the Fund was sponsored by the District Collector, and the assessee were under a bona fide impression that it was a lawful one, having been sponsored by e governmental authorities and, accordingly, they made the contributions to the Fund under the impression that they were making payments to a bona-fide Fund. They were not aware, at the time they made the contribution, that these contribution, wee opposed public policy. In such circumstances, counsel contended, holding such payment as opposed public policy would cause the assessee irreparable prejudice. Counsel, indeed, puts use on notice this question is fraught with gave consequences because, he submitted, formation of such funds by various political and administrative s authorities is the order of the day where citizens are simply forced to make the contributions, Counsel submitted that such collections have become inseparable from e present day national life.;