BHAGAT BROS Vs. INCOME TAX OFFICER

LAWS(IT)-1992-4-15

INCOME TAX APPELLATE TRIBUNAL

Decided on April 09,1992

Appellant

VERSUS

Respondents

JUDGEMENT

M.A.A. Khan, Judicial Member - (1.) TO 6. [These paras are not reproduced here as they involve minor issues]. 7. By applying the provisions of Section 40A(3) the Income-tax authorities have disallowed a donation of Rs. 5,000. The relevant facts are that the ITO noted that out of the TOtal donation of Rs. 5,512 in its Ahmedabad branch a claim for deduction of Rs. 2,756 under Section 80G of the Act had been made by the assessee. According TO the ITO the eligible donation came TO Rs. 501 only as payment of the remaining amount of Rs. 5,000 TO Digvijay Federation, Ahmedabad was made in cash which sTOod hit by Section 40A(3) of the Act, though otherwise the same was eligible for deduction under Section 80G. He, therefore, restricted the deduction TO Rs. 250 being 50 per cent of the eligible amount of Rs. 501. 8. In appeal the main argument advanced on behalf of the assessee was that a payment partakes the character of expenditure only when it is laid out or expended for the purpose of earning profit in business. On this line of reasoning it was submitted that a donation not being an expenditure was not hit by the provisions of Section 40A(3). However, relying upon the Orissa High Court decision in the case of Sajownlal Jaiswal reported in 103 ITR 706 and Board Circular No. 22, dated 17th July, 1969 the learned CIT(Appeals) was of the opinion that all outgoing, including donations would fall within the purview of Section 40A(3) of the Act. He accordingly confirmed the disallowance. 9. It was urged before us that donations made TO charitable institution are not expenditures so as TO attract the provisions of Section 40A(3) of the Act. The learned departmental representative, on the other hand, supported the order under appeal and further submitted that as has been held by the Orissa High Court in the case cited supra and as directed by the CBDT in its Circular referred TO above a donation made in cash exceeding Rs. 2,500 would be hit by the provisions of Section 40A(3). We are, however, of the opinion that the argument advanced on behalf of the assessee is not without force. 10. Chapter VI-A of the Act deals with such deductions which are required TO be made in computing the TOtal income of an assessee. Section 80A clearly says that in computing the TOtal income of an assessee there shall be allowed from his TOtal income in accordance with and subject TO the provisions of this Chapter, the deduction as specified in sections 80C TO 80U and the aggregate amount of such deductions under that chapter shall, not in any case exceed the gross TOtal income of the assessee. Sub-section (3) of Section 88 further says that where in computing the TOtal income of a firm, association of persons or body of individuals any deduction is admissible under Section 80G or Section 80GGA or Section 80HH, or Section 80HHA or Section 80HHB or Section 80HHC or Section 80HHD or Section 80HHI or Section 80HHJ or Section 80JJ no deduction under the same section shall be made in computing the TOtal income of a partner of the firm or as the case may be member of association of persons or body of individuals in relation TO the share of such partner in the income of the firm or the share of such member in the income of association of persons or body of individuals. The term "Gross Total Income" is defined in Sub-section (5) of Section 80B of the Act as meaning the TOtal income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. Sections 28 TO 44D regulate the procedure regarding the computation of income chargeable TO Income-tax under the head "Profits & Gains of Business or Profession". These sections deal with various types of expenditure, allowances, etc. which the assessee can claim as deduction in the computation of his income chargeable TO income-tax under the head "Profits & Gains of the Business or Profession". When this position is read with the definition of the term ' Gross Total Income' as defined in Sub-section (5) of Section 80B it would be clear that the provisions of Section 40A(3) cannot be claimed TO be applicable TO the deductions TO be made under Chapter VI-A of the Act. In fact the deductions TO be made in computing the TOtal income as per Chapter VI-A are required TO be made after the gross TOtal income of an assessee has already been determined or so computed in accordance with Chapter V of the Act. In the instant case the business income of the assessee was required TO be computed as per provisions of Sections 28 TO 44D. It was only thereafter that the assessee could have claimed deductions under Chapter VI-A from its gross TOtal income already computed as per the provisions, of Chapter V. We are, therefore, of the opinion that TO a claim for deduction under Section 80G the provisions of Section 40A(3) are not applicable. 11. In the case before the Hon'ble Orissa High Court the payment for purchase of sugar had not been excluded by Rule 6DD of Income-tax Rules, 1962 and, therefore, the Tribunal held that the payment fell within the purview of Section 40A(3). The Hon'ble High Court observed that payment for purchase of goods would certainly be an expenditure and the expenditure referred TO in Section 40A(3) is not confined TO expenditure. That could be claimed as deduction under Section 37 and refers TO any payment made by the assessee and taking inTO account in computing the TOtal income under the provisions of the Act. We have discussed above that in computing the TOtal income of the assessee the expenditure is TO be considered with reference TO Sections 28 TO 44D of the Act. In our opinion, this case does not help the revenue. 12. The view that the provisions of Section 40A(3) are not applicable TO the deductions TO be made under Chapter VI-A of the Act is in fact supported by a study of the provisions of Sections 40A(1) and 40A(3) themselves. Section 40A(1) clearly lays down that the provisions of that section shall effect notwithstanding anything TO the contrary contained in other provisions of the Act relating TO the computation of income under the head "Profits & Gains of Business or Profession". We have already mentioned that Sections 28 TO 44D relate TO the computation of income under the head "Profit & Gains of Business or Profession". Section 80G which falls under Chapter VI-A does not in fact relate TO the computation of income under the head "Profits & Gains of Business or Profession". 13. The same view can be taken on a reading of Section 40A(3) which lays down that where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs. 2,500 (as it is sTOod at the relevant time) otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. To our mind the word 'expenditure' carries with it the concept of reciprocity of consideration. By incurring some expenditure a person gets something in consideration for which he makes payment. That is not so is the case of donation which is undoubtedly an outgoing. The donation is not made for any consideration. The donor gets nothing from the donee in consideration of the payment made by him TO the donee by way of donation. That itself suggests that the term "expenditure" occurring in the language of Section 40A(3) does not embrace within its fold the term donation as mentioned in Section 80G. Thus we are clearly of the opinion that the provisions of Section 40A(3) are not applicable TO a donation made under Section 80G of the Act. 14. On merits also we are clearly of the opinion that the payment in question was not TO be disallowed. The genuineness of the payment is not at all disputed or doubted. Once the genuineness of the transaction has not been disputed or doubted, there can hardly be other grounds, particularly in the matter of disallowing donations made TO charitable institutions TO disallow the expenditure. The Board circular thus does not come in the way of getting the allowance in dispute by the assessee. 15. To sum up the appeal is partly allowed TO the extent mentioned above. 16. TO 18. [These paras are not reproduced here as they involve minor issues].;

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