Kirpal, J. - (1.) In respect of the assessment years 1971-72 and 1972-73 the appellant filed its return of income and claimed deduction for the amounts paid by it to the Andhra Pradesh Welfare Fund, West Godavari (Branch Eluru) as a business expenditure under Section 37 (1) of the Income-tax Act, 1961 (for short the Act).
(2.) The case of the appellant was that it was carrying on the business of exporting rice from the State of Andhra Pradesh. This rice could not be exported without the appellants obtaining a permit from the District Collector. The permits were given only if payment was made to a welfare fund which had been established. The Income-tax Officer however, disallowed the deduction by holding that the said payment was neither mandatory, nor statutory but was only discretionary. He further observed that the welfare fund had not been approved by the Commissioner of Income tax under Section 80-G of the Act and, therefore, contribution to it could not be deducted.
(3.) The appeals filed by the appellant before the Appellate Assistant Commissioner met with no success. Thereupon, second appeals were filed before the Income-tax Tribunal. The appeals were heard by a Full Bench of the Tribunal which, while allowing the appeals, came to the conclusion that though there was no compulsion on the appellant to make a contribution to a welfare fund still the contributions made in pursuance of a scheme which was evolved by the Rice Millers Association in consultation with the District Collector would show that an advantage would ensue on the payment of the contribution and, therefore, the deduction was allowable under Section 37 (1) of the Act, The Tribunal further held that such contributions could not be held to be opposed to public policy. Against the order of the Tribunal disposing of the appeals the department filed four applications under Section 256(1) of the Act whereupon the following question of law was referred: "Whether on the facts and in the circumstances 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 allowable under Section 37 (1) - At the instance of the assessee the following question of law was referred: "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 contribution to the District Welfare Fund for getting permits from 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 - ;