V. K. SINHA, A. M. :

This is an appeal filed by the Department.

2. Ground No. 1 is reproduced below :

"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in ignoring the technical default in terms of r. 46 of the IT Rules, and further erred in disposing of the issue raised in the grounds of appeal."

3. During the hearing before us, both sides agreed that there was a typing error in the above ground, in as much as "r. 45" had been typed as "r. 46." We, accordingly, proceed to treat the ground as if it relates to r. 45.

4. According to r. 45(2) of the IT Rules, 1962, the form of appeal in Form No. 35 to be filed before the CIT(A) should be signed and verified by the person who is authorised to sign the return of income under S. 140 of the IT Act, 1961. In the present case, the appeal memo should have been accordingly signed by the managing director of the company. However, it was noticed by the CIT(A) that, it had been singed by a director. On being pointed out, the assessee filed a fresh memo before the CIT(A) in the course of hearing where it was signed by the managing director. The CIT(A) ignored the technical default and proceeded to dispose the issues on merits. The Revenue objects to this decision and is in appeal before us.

5. We have heard the rival submissions. It has been held by the Tribunal in the case of Hari lelas vs. First ITO (1986) 16 ITD 356 (Bom) that a memo signed by a wrong person is a curable defect and not fatal. Further, when a properly signed memo is filed subsequently, it relates back to date on which the original defective memo was filed. Respectfully following this decision, we hold that the CIT(A) was justified in entertaining the appeal. This ground of appeal is rejected.

6. Ground of appeal No. 2 is reproduced as below :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to exclude reimbursement of club fees from the computation of disallowance under S. 40(C) /40A(5) of the IT Act, 1961."

7. We have heard the rival submission. It has been hold by the Bombay High Court in the case of CIT vs. Otis Elavator Co. (India) Ltd. (1977) 107 ITR 241 (Bom), that club membership should not be included in perquisite for the purpose of computation of disallowance under S. 40(c) of the IT Act. Respectfully following this decision, the above ground of appeal is rejected.

8. Ground of appeal No. 3 is reproduced below.

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to recompute disallowance under r. 6D taking all the trips in respect of each employee and not on individual trip basis."

9. Here the matter is covered in favour of the assessee by the decision of the Tribunal in the case of S. V. Ghatalia vs. Second ITO (1983) 4 ITD 583 (Bom). Respectively following the same, this ground is also rejected.

10. Ground of appeal No. 4 is reproduced below :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow an amount of Rs. 57,940 being the expenditure incurred towards the issue of bonus share as revenue expenditure."

11. The Assessing Officer noticed that the assessee has incurred a sum of Rs. 27,915 as survey fees for valuation of assets of M/s. Patel Filters Ltd., and the amount had been claimed as revenue expenditure. He took a view that if the investment had been made by the assessee then, a capital asset would have come into existence. In light of this, he held that the amount was only a capital expenditure and he disallowed it.

12. The CIT(A) found that the fees were actually paid for getting a report on the valuation of shares of Patel Filters Ltd. It was stated before him that the assessee held 39% of the shares in the above company as trade investment and they wanted to ascertain whether they can invest more funds for acquiring shares of that company. M/s. Patel Filters Ltd. was stated to be manufacturing the facilities which were used by the assessee-company. In view of the above, the CIT(A) accepted the contention of the assessee that the investment was "purely out of commercial expediency" and thereafter he allowed the disallowances. The Revenue is now in appeal before us.

13. The learned Departmental Representative relied on the assessment order in support of his contention, that the expenditure was nothing but a capital expenditure.

14. The learned counsel for the assessee on the other hand submitted that it was a revenue expenditure. He explained that the assessee had business of designing chemical plants and also giving assistance in their erection. For this purpose, some facilities were being manufactured by M/s. Patel Filters Ltd., and the assessee held 39% shares of the company. Our attention was also invited to note 7 in auditors report. It was further submitted that Punjab & Haryana High Court had held in the case of Hindustan Milk Food Mfrs. Ltd. vs. CIT (1989) 45 Taxman 392 (P&H) that expenditure incurred for seeking legal advice from legal counsel for purchase for purchase of land was allowable as deduction as revenue expenditure under S. 37(1) of the IT Act. He, therefore, submitted that the decision of the CIT(A) should be confirmed.

15. We have considered the rival contentions carefully. In the case of Hindustan Milk Food Mfrs. Ltd. vs. CIT (supra), the Punjab & Haryana High Court was considering the allowability of expenditure incurred on seeking legal advice. The assessee wanted to purchase land for extension of their manufacturing activities and legal advice was sought in that connection, ultimately the land was not purchased. The Revenue placed reliance on the decision of Bombay High Court in Rajasthan Construction Co. Pvt. Ltd. (1984) 148 ITR 61 (Bom) for the proposition that litigation expenses for filing the suit for specific performance, even if the asset is not required, is of the capital nature. However, the decision was found to be distinguishable as there the question was not whether the fees paid for obtaining legal advice amounted to a expense of revenue or capital nature.

16. After careful consideration, we find that the decision in the case of Hindustan Milk Food Mfrs. Ltd. (supra) is distinguishable from the present case in as much as the issue before us is not the allowability of expenditure incurred for seeking legal advice from legal counsel. On the other hand, the facts are far more similar to the facts in the case of Rajasthan Construction Co. Pvt. Ltd. (supra) decided by the jurisdictional High Court. In that case, the assessee entered into as agreement with a party who agreed to sell to the assessee a piece of land. Suits were filed in respect of the property contesting the partys title to it, the assessee filed a suit against the party for specific performance and claimed the expenditure incurred in doing so as revenue expenditure. It was held that litigation expenditure has not been incurred to protect any asset in the form of land, because that asset was never acquired and did not belong to the assessee. If and when the assessee succeeded in getting the land, the litigation expenses would have formed part of the cost of acquiring the capital asset. It was, therefore, held that the expenses were capital expenses. We are of the opinion that the ratio of this case will be equally applicable to the facts of the present case. In the circumstances, we would reverse the decision of the CIT(A) and hold that the expenditure was capital expenditure. This ground of appeal is allowed.

17. Ground No. 5 is reproduced below :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow an amount of Rs. 57,940 being the expenditure incurred towards the issue of bonus shares as revenue expenditure."

18. We have heard the rival submissions and find that the CIT(A) has rightly followed the decision of the Bombay High Court in the case of Bombay Burmah Trading Corpn. Ltd. vs. CIT (1984) 145 ITR 793 (Bom). In the circumstances, we decline to interfere.

19. Ground No. 6 is reproduced below :

"On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance made of Rs. 6,777 the addition made by the Assessing Officer on account of subscription to club."

20. The CIT(A) held that subscription to club also served business purpose and was, therefore, allowable under S. 37(1). We see no reason to interfere. This ground is rejected.

21. Ground No. 7 is reproduced below :

"On the facts and in the circumstances of the case and law, the learned CIT(A) erred in directing the Dy. CIT to allow deduction under S. 80G of the IT Act, 1961 in respect of Rs. 1,00,000 in respect of the payment made to Manipal Institute of Technology Trust in Karnataka."

22. The Assessing Officer observed that the assessee claimed deduction under S. 80G in respect of contribution made to "Academy of General Education, Manipal". The receipt for the same was furnished before him. The Assessing Officer found that the Registrar of Companies had mentioned to the assessee-company in an appeal that the Institute was approved under S. 80G but it had not furnished the certificate number. The letter of the Registrar also mentioned a scheme introduced, according to which each donor who donated Rs. 1,00,000 can nominate one student for admission to the Manipal Institute of Technology in Karnataka, every alternative year. Further, the donor who paid Rs. 2,00,000 can nominate one student for admission every year. The Assessing Officer took a view that it was not a voluntary contribution but rather a scheme for mutual benefit in present of future, and, therefore, the contribution cannot be treated as a donation. Reliance was placed on the decision of the Supreme Court in Commr. of Expenditure Tax vs. P. V. G. Raju (1975) 101 ITR 465 (SC). He, therefore, declined to give benefit under S. 80G.

23. The CIT(A) observed that the Assessing Officers doubt arose only because the managing director and the directors of the assessee-company came from the area where the institute was located. It was argued before him that just because certain facilities were provided it does not mean that benefit accrued from such donation. A copy of the letter written by the Register of the Academy of General Education to the assessee-company was filed before him. The CIT(A) held that notwithstanding the fact that the directors could be having a personal interest in the institute and the area where the institute was established, the company itself cannot be said to have derived any benefit out of the donation made by it. He, therefore, directed that donation under S. 80G should be allowed. The Revenue is now before us in appeal.

24. The learned Departmental Representative relied on the assessment order and emphasised that the sum paid was not a donation at all.

25. The learned counsel for the assessee on the other hand claimed that it was nothing but a donation. He clarified that the amount was actually Rs. 2 lakhs and a donation of only 50% had been allowed under S. 80G of the Act. Our attention was also invited to a copy of certificate of exemption under S. 80G in respect of Manipal Engg. College Trust for the period 1st April, 1976 to 31st March, 1983 issued by the CIT, Karnataka II, Bangalore vide his No. HQ II/718/71/70-CIT-II 3rd May, 1982. He further submitted that there is no quid pro quo in the matter of giving donations and the right to nominate one student for the institute, since it was the option of the donor to nominate student or not. He, therefore, submitted that the decision of the Supreme Court in the case of Commr. of Expenditure Tax vs. P. V. G. Raju (supra) was distinguishable. For this reason he submitted that the deduction has been rightly allowed by the CIT(A).

26. The learned counsel for the assessee has also invited our attention to the decision of the Tribunal in the assessees own case for asst. yr. 1984-85 at para 22 to 32 dealing with the question whether fees payable by the assessee-company towards technical designs, etc., as per agreement with M/s. Dorr Oliver (INC) USA was allowable as revenue expenditure. It was held therein that it was a case of only a user of drawings, designs, etc., and not out-right purchase and, therefore, the expenditure was that of a revenue nature. The learned counsel submitted that the above decision along with note No. 7 of the annual report supported the contention that the existing investment in the shares of Patel Filters Ltd. and proposed further investment in that company were for commercial consideration and were related to the business of the assessee and were not mere investments. On this ground also it was submitted that deduction should be allowed under S. 80G.

27. We have considered the rival submissions carefully. As far as the contention is concerned that the further investment in the company was for commercial consideration, we are of the opinion that we are not called upon to consider this aspect, since it is not relevant for the purposes of deduction under S. 80G of the IT Act. What is deductible under S. 80G is related to donation, for which commercial expediency is not at all relevant.

28. Coming now to the provisions of S. 80G, this section is included under Chapter VIA of the IT Act, 1961 with a heading "Deductions to be made in computing total income". Clause (2) to S. 80G lays down that the sums in relation to which deduction shall be allowed are, inter alia, any sum paid by the assessee as "donation" to any fund or institution to which S. 80G applies. The assessee has furnished a copy of certificate from the concerned CIT, that exemption under S. 80G is applicable to "donation" made to the Manipal Institute of Technology. We have now to see further, whether the amount of Rs. 2 lakhs given by the assessee to Manipal Institute of Technology can be called as "donation".

29. The word "donation" has not been defined in the IT Act. It was not defined under the Expenditure-tax Act, 1958 either, but the Supreme Court has explained its meaning in Commr. of Expenditure-tax vs. P. V. G. Raju (supra). The Act levied tax on expenditure of an assessee but certain exemption was provided in respect of any expenditure incurred by the assessee by way of a donation. The relevant part of S. 5 of the Expenditure-tax Act, 1958 is reproduced below :

"5. No expenditure-tax shall be payable under this Act in respect of any such expenditure as is referred to in the following clauses, and such expenditure shall not be included in the taxable expenditure of an assessee -

(a) any expenditure, whether in the nature of revenue expenditure or capital expenditure, incurred by the assessee wholly and exclusively for the purpose of the business, profession, vocation or occupation carried on by him or for the purpose of earning income from any other source.....

(i) any expenditure incurred by the assessee by way or, or in respect of, any gift, donation or settlement on trust or otherwise for the benefit of any other person..."

30. The Supreme Court described the meaning of the word "donation" in the following words :

"When a person gives money to another without any material return, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. We do not require lexicographic learning nor precedential erudition to understand the meaning of what many people do every day, viz., giving donations to some fund or other, or to some person or other."

"Indeed, many rich people out of diverse motives make donations to political parties. The hope of spiritual benefit or political goodwill, the spontaneous affection that benefaction brings, the popularisation of a good cause or the prestige that publicised bounty fetches -these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo. Wholly motiveless donation is rare, but material return alone negates a gift or donation."

31. The essence of the matter, therefore, is whether the assessee gave Rs. 2 lakhs to Manipal Institute of Technology without any material return and without any consideration and whether it was a grant for quid pro quo. The letter from the Registrar of the Academy of General Education makes it clear that each benefactor who donates Rs. 2 lakhs can nominate one student for admission to the Manipal Institute of Technology every alternate year and the benefactor who had paid Rs. 2 lakhs or more can nominate one student for admission every year. This sponsored student was not required to pay any capitation fee and had to pay only the tuition and other special fees. The enclosed brochure also mentioned the following privileges :

"1. They can refer any of their engineering problems to the Manipal Institutes of Technology to find a solution. The engineering college will charge the actual cost thereof and the development work done in this regard will be the exclusive property of the industry which has sponsored the project.

2. The Manipal Institute of Technology will provide all the testing facilities at a very nominal cost.

3. The Manipal Institute of Technology will conduct short courses in continuing education for the benefit of the engineers and the personnel of the benefactor industries.

4. They can recommend first class students who have aptitude for admission to engineering course."

32. In view of the above, we are of the opinion that the sum of Rs. 2 lakhs does not qualify as a "donation" at all, and was only a grant for a quid pro quo for a material return. In view of this, even if the Manipal Institute of Technology holds a certificate of exemption under S. 80G, the sum of Rs. 2 lakhs will not be entitled to a benefit under S. 80G, since it is not a "donation".

33. The Departments ground of appeal is allowed and the assessee will not be entitled for a benefit under S. 80G for the above sum.

34. In the result, Departments appeal is partly allowed.