Rajesh BALIA, J. - (1.) : We have heard learned counsel for the parties.
(2.) THE appellant, Addl. CIT, Udaipur has filed this appeal under s. 260A of the IT Act, 1961, against the order dt. 9th Nov., 1998 passed by the Tribunal, Jaipur Bench, Jaipur stating that the following substantial question of law arises for consideration in this appeal : "Whether in the facts and circumstances of the case, the Tribunal was right in allowing the claim of expenditure to the tune of Rs. 15 lacs as covered under s. 37(1) of the Act when the contribution was clearly hit overriding s. 40A(9) of the Act." In the question referred to above, reference to s. 40A(9) has apparently been made under misapprehension. Sec. 40A(9) applies only in such cases when the question arises about any sum paid by the assessee as an employer towards setting up or formation of or contribution to any fund, trust, company, AOP, BOI, society registered under the Societies Registration Act, 1860, or other institution. Apparently, sub-s. (9) of s. 40A can only be pressed when such sum is paid by any assessee in his capacity as an employer which means that the expenses are incurred on the basis of relationship of employer and employee and for the welfare of its employees. It cannot be said that the claim to deduction which is subject-matter of question framed in this case has anything to do with the object of the assessee as an employer towards Export Promotion Fund. The contribution towards Export Promotion Fund is made in his capacity as a manufacturer and trader to further his business interest by serving its export activities and are not made in his status as an employer of the works. In these circumstances, in our opinion, the substantial question of law as framed above does not arise in this case, but the question of law, which can be said to arise, is as under : "Whether the contribution made to Bhilwara Export Fund amounting to Rs. 15 lacs by the assessee could be termed as expenditure laid out or expended wholly and exclusively for the purposes of the business, while the Bhilwara Export Fund has only charitable objects without having business purpose and the Tribunal is justified in allowing the deductions of Rs. 15 lacs under s. 37(1) of the Act ?"
(3.) THE dispute relates to the claim of the assessee to deduction of Rs. 15 lacs of contribution made to the Bhilwara Export Development Fund. THE AO has initially allowed the claim of assessee by way of deduction as expenses wholly and exclusively incurred for the purpose of assessee's business. However, the CIT exercising his powers under s. 263 opined that the assessing authority has committed an error prejudicial to the interest of Revenue in allowing the aforesaid expenses by holding that the expenses cannot be said to be wholly and exclusively incurred for the purpose of assessee's business because the objects of Export Promotion Fund are all charitable and do not relate exclusively for the benefits of the assessee. However, the Tribunal found the contribution to the Export Promotion Fund to be wholly and exclusively for the purpose of assessee's business. The Tribunal considered that participating companies were required to contribute such percentage of domestic sales as may be decided by the trustees from time to time. The trust deed also stipulated receiving of subsidy by the participating companies based on export percentage of the companies as per the criteria decided by the trustees. In pursuance of this stipulation, the assessee-company contributed a sum of Rs. 15 lacs to the fund. The Tribunal also found that during the asst. yrs. 1988-89 to 1991-92, the assessee-company has received different amounts by way of subsidy on the basis of its export sales. In these circumstances, the Tribunal found that in order to augment its own export sales and give competitive edge to its marketing, the assessee-company has contributed to the fund in its own business expediency, firstly, with the objects of increasing opportunity of exports of goods manufactured by it and secondly, to earn the subsidy. The assessee has been successful in its objects, which led to the participation in the fund. In view thereof, the Tribunal did not agree with the finding of the CIT that the expenses incurred by the assessee were not wholly or exclusively for its business purpose. The Tribunal also referred to the decision of Supreme Court in Sasoon J. David & Co. (P) Ltd. vs. CIT (1979) 10 CTR (SC) 383 : (1979) 118 ITR 261 (SC) wherein the Court had said that the expression "wholly or exclusively" cannot be equated with "necessarily". It is not the dire necessity of the business in which expenses incurred can only be considered wholly or exclusively for the purpose of business. The augmentation of expenses does not fall within the purview of expression "wholly or exclusively" spent for the purpose of assessee's business. ;