- (1.) The instant appeal under Section 260-A of the Income Tax Act, 1961 (in short the Act) has been preferred against the order dated 23.3.2007 passed by the Income Tax Appellate Tribunal, Lucknow (in short Tribunal). It relates to the assessment year 1996-97. The Tribunal declined to allow as deduction from the business income of the appellant under Section 37(1) of the Income Tax Act with regard to contribution of Rs. 1 lac and Rs. 10 lacs in pursuance to the instructions issued by the State Government for the purpose of books for P.C.S. coaching centre and construction of residential houses made by estate department for the senior officers deputed in various corporations, companies of the State Government, whose work is carried out by the appellant.
(2.) The appeal was admitted on 17.1.2008 on the following substantial questions of law. "Admit on the following substantial question of law. Whether on the facts and under the circumstances of the case, the contributions of Rs. 1 lac and Rs. 10 lacs made by the appellant ( a Govt. Company) under the instructions of the State Government on account of the commercial expediency are allowable as deduction under Section 37(1) of the Income Tax Act from the income of the appellant ?"
(3.) The assessing authority disallowed the deduction for the reasons that deduction of Rs. 1 lac for library with regard to PCS officer does not fall under business expediency. Before the assessing officer, defence taken by the appellant was that the contributions were made for the benefit of weaker sections, hence they should be allowed as deductions from business income. It is stated before the assessing authority that the appellant is carrying out welfare activity for weaker sections. Relevant portion of the order of assessing authority is re-produced as under:- "Regarding the contribution to Library of P.C.S. coaching centre and the contribution to U.P. Government for construction of Flats at Lucknow amount to Rs. 1,00,000/- and Rs. 10,00,000/- respectively it has been pleased by the assessee that both the contributions were made for the benefit of weaker sections, therefore, they should be allowed as deductions from the business income as the assessee is carrying out welfare activities for the weaker sections. This submission of the assessee is not acceptable. Though, it is a fact that part income of the assessee derived from the projects related for the weaker sections is exempt as per directions of the Hon'ble High Court, yet the same principle of exemption if income pertaining to the weaker sections cannot be applied or hold good for the deductions on account of contribution for the welfare of weaker sections. It is a settled law that from the business income only the expenditure incurred for the business purposes are allowed deductions. Since the contribution for the library for P.C.S. coaching centre as well as contribution to U.P. Government for the construction of Flats has nothing to do for the purposes of the business of the assessee, hence the same shall not be allowed as a deduction from the business income, hence this claim of the assessee is rejected.";