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Citation Codes
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Case Number
Attorney(S)
  • For the Applicant: Mr. M.L Verma, Advocate.
  • For the Assessee: Mr. V.S Desai, Sr. Advocate with Mr. D.N Misra, Advocate.
Judges
  • S.Ranganathan
  • T.V.R.Tatachari
Acts
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Applicant: Mr. M.L Verma, Advocate.
  • For the Assessee: Mr. V.S Desai, Sr. Advocate with Mr. D.N Misra, Advocate.
Judges
  • S.Ranganathan
  • T.V.R.Tatachari
Acts
See more information ...
Smart Summary

Factual and Procedural Background

This judgment disposes of six references concerning different assessment years from 1956-57 to 1961-62. The Income-tax Appellate Tribunal, Delhi Bench, referred to the Court a common question regarding whether the expenditure incurred by the assessee in organising Football and Hockey Tournaments was an allowable deduction under Section 10(2)(xv) of the Income-tax Act, 1922.

The assessee, M/s. Delhi Cloth & General Mills Co. Ltd. (D.C.M Group), conducted annual All India hockey and football tournaments open to the public on payment. The assessee claimed deductions for the expenses incurred in organising these tournaments on the ground that such expenses were wholly and exclusively for the purpose of business, specifically as advertising expenditure.

The Income-tax Officer disallowed the deduction, holding that the tournaments had no direct connection with the business and that the publicity generated would not be associated by readers with the company. The Appellate Assistant Commissioner partially allowed the deduction, while the Appellate Tribunal allowed the full deduction, finding the tournaments provided significant advertising value and employee amenities beneficial to the business. The Commissioner of Income-tax then referred the question to this Court for decision.

Legal Issues Presented

  1. Whether the expenditure incurred by the assessee in organising Football and Hockey Tournaments was an allowable deduction under Section 10(2)(xv) of the Income-tax Act, 1922, being wholly and exclusively for the purpose of business.

Arguments of the Parties

Assessee's Arguments

  • The expenses were incurred wholly and exclusively for the purpose of business as advertising costs.
  • The staging and sponsoring of the tournaments generated continuous newspaper reports that promoted the D.C.M Group, bringing the company name into prominence.
  • The tournaments also provided amenities to employees, which was beneficial for the business.

Income-tax Officer's Arguments

  • The tournaments had hardly any connection with the business of the assessee.
  • There was no direct connection between the business and the conduct of the tournaments.
  • Even if a remote connection existed, the expenditure was not wholly and exclusively for business purposes and thus not deductible.
  • Readers of newspaper reports would not associate the tournaments with the company’s name.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ward & Co. Ltd. v. Commissioner of Taxes, 1923 A.C. 145, 148 Expenditure wholly and exclusively for business includes advertising costs. Supported the principle that advertisement expenses incurred for business promotion are deductible.
Central India Spg., Wvg. & Manufacturing Co. Ltd. v. Commissioner of Taxes, 11 ITR 266, 286 Expenditure wholly and exclusively for business purposes. Reinforced the definition of allowable business expenditure.
Cillatt & Watts v. Colquhoun, 2 To 76, 81 Business expenditure principles. Referenced to clarify the nature of allowable deductions.
Re. Hindustan Commercial Bank Ltd., 21 ITR 353, 363 Business expenditure wholly and exclusively for trade. Confirmed the principle of exclusive business purpose requirement.
Southern v. Aldwych Property Trust Ltd., 23 T.C. 707, 714 Advertising expenditure as business expense. Supported the deductibility of advertising costs.
Robert Addie & Sons' Collieries Ltd. v. IR, 8 TC 671, 676 Determination of expenditure wholly and exclusively for trade by commercial principles. Applied to assess the nature of expenditure in the instant case.
C.I.T v. Chandulal Keshavla & Co., 38 ITR 601, 607, 610 (S.C.) Principle that expenditure wholly and exclusively for business is deductible irrespective of actual profit. Used to clarify that profit need not be demonstrated for deduction.
Eastern Investment Ltd. v. C.I.T, 20 ITR 1, 4 Expenditure incurred in course of trade wholly and exclusively for business is deductible even if indirect. Applied to hold that indirect benefits like advertising and employee amenities qualify.
Atherten v. British Insulation & Helsby Cables Ltd., 10 T.C. 155, 191 (HL) Expenditure indirectly facilitating business can be wholly and exclusively for trade. Quoted with approval and applied to support indirect advertising benefits.
Commissioner of Income-tax v. Chandulal Keshavlal & Co., 38 ITR 601, 611 Expenditure wholly and exclusively for business includes indirect facilitation. Confirmed the principle that indirect benefits suffice for deduction.

Court's Reasoning and Analysis

The Court analyzed the statutory provision under Section 10(2)(xv) of the Income-tax Act, 1922, which permits deduction of expenditure wholly and exclusively laid out for business purposes, excluding capital or personal expenses and other specified allowances.

Relying on established precedents, the Court emphasized that expenditure incurred for advertising and indirect facilitation of business is deductible even if it does not directly generate profit. The Court rejected the Income-tax Officer’s view that the tournaments had no connection with the business, holding that persistent newspaper reports mentioning "D.C.M" created significant advertising value by making the company a household name.

Additionally, the Court accepted that providing recreational amenities to employees through such tournaments furthered the business interests. The Court agreed with the Appellate Tribunal’s findings that the expenditure was wholly and exclusively for business purposes and thus deductible under the statute.

Holding and Implications

The Court answered the referred question in the affirmative, holding that the expenditure incurred by the assessee in organising Football and Hockey Tournaments was an allowable deduction under Section 10(2)(xv) of the Income-tax Act, 1922.

The direct consequence of this decision is that the assessee is entitled to claim the full deduction of the expenses incurred in conducting the tournaments for the specified assessment years. The Court directed that the parties bear their own costs. The judgment does not establish new precedent but reinforces existing principles regarding business expenditure and advertising deductions.

Show full summary ...

    Cit v. Delhi Cloth & General Mills Co. Ltd.

    T.V.R Tatachari, C.J:— These six references can be disposed of by a common judgement. They relate to the respective assessment years as stated below:—

    I.T.R No. 197 of 1974 1956-57
    I.T.R No. 172 of 1974 1957-58
    I.T.R No. 104 of 1973 1958-59
    I.T.R No. 105 of 1973 1959-60
    I.T.R No. 106 of 1973 1960-61
    I.T.R No. 107 of 1973 1961-62
    2. The Income-tax Appellate Tribunal, Delhi Bench, has referred to this Court the following question which is common to all the six assessment years:—
    “Whether on the facts and in the circumstances of the case the expenditure incurred by the assessee in organising Football and Hockey Tournaments was an allowable deduction under Section 10 (2) (xv) of the Income-tax Act, 1922?”
    3. The Assessee Company, M/s. Delhi Cloth & General Mills Co. Ltd., Delhi, owns a number of mills referred to as Delhi Cloth Mills Group (hereinafter referred to as “the D.C.M Group”). The company conducts annually All India hockey and football tournaments for which teams from various parts of the country are invited. The tournament is open to general public on payment. The assessee claimed a deduction of the expenses incurred for the conduct of the tournaments in the aforesaid assessment years. The expenses for the assessment years 1956-57 and 1957-58 came to Rs. 53,172.00, while the amounts for the assessment years 1958-59, 1959-60, 1960-61 and 1961-62 came to Rs. 26,103.00, Rs. 21,734.00, Rs. 12,814.00 and Rs. 31,406.00 respectively.
    4. The assessee claimed the deduction of the said expenses under the head of advertisement. According to the assessee, the staging and sponsoring of these tournaments had a great advertising value for the company as day after day the newspapers reported about the D.C.M Tournaments, thus bringing the name of the D.C.M Group into prominence. The assessee claimed that the said expenses were incurred wholly and exclusively for the purpose of business, and deduction of the same was, therefore, allowable under Section 10 (2) (xv) of the Income-tax Act, 1922.
    5. The Income-tax Officer refused to allow the deduction taking the view that the holding of the tournaments could hardly be said to have any connection with the business of the assessee, that there was no direct connection between the business and the conduct of the tournaments, and even if there might be some remote connection between the two, the same was not enough for claiming the deduction of the expenditure, as such deduction could be claimed only if the expenditure was incurred wholly and exclusively in the carrying on of the business, and that the readers of the reports in the newspapers would not be connecting in their minds the name of the tournament with the name of the company.
    6. On appeals by the assessee, the Appellate Assistant Commissioner allowed the claim for deduction to the extention of Rs. 20,000/-only, following his orders for the prior years.
    7. On further appeal by the assessee, the Appellate Tribunal held that by holding the tournaments the assessee gets publicity, that the headlines to the reports in the newspapers about the tournaments go a long way to make the company a house-hold word, that it also provides opportunities to the employees of the Mills to participate and also to witness such tournaments which is an amenity which was very necessary in modern times, and that the holding of the tournament was thus very helpful to the business. In that view, the Tribunal allowed the deduction of the expenditure in each of the assessment years in full.
    8. Then, at the instance of the Commissioner of Income-tax, Delhi, the Tribunal referred to this court the question which we have already set out earlier in this judgment.
    9. As stated earlier, the assessee claims deduction of the expenditure under Section 10 (2) (xv) of the Income-tax Act, 1922, which reads as under:
    “(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.”
    Thus, under the above provision, the expenditure would be allowable as deduction if it was incurred wholly or exclusively for the purpose of the business, profession or vocation of the assessee. It should not be an allowance of the nature described in any of the clauses (i) to (xiv) of Section 10 (2). It should also not be in the nature of capital expenditure or personal expenses of the assessee. It has been held in a number of cases that expenditure laid out wholly or exclusively for the purpose of business, profession or vocation would include the costs of advertisement (vide Ward & Co. Ltd. v. Commissioner of Taxes, 1923 A.C 145, 148 (1); Central India Spg., Wvg. & Manufacturing Co. Ltd. v. Commissioner of Taxes, 11 ITR 266, 286 (2): Cillatt & Watts v. Colquhoun 2 To 76, 81 (3); Re. Hindustan Commercial Bank Ltd. V. 21 ITR 353, 363 (4); and Southern v. Aldwych Property Trust Ltd., 23 T.C 707, 714 (5).
    10. It is also a settled principle that what is money wholly and exclusively laid out for the purpose of trade is a question which must be determined upon the principles of ordinary commercial trading (vide Robert Addie & Sons' Collieries Ltd. v. IR 8 TC 671, 676 (6), C.I.T v. Chandulal Keshavla & Co., 38 ITR 601, 607, 610 (S.C) (7). Further, as held in Eastern Investment Ltd. v. C.I.T 20 ITR 1, 4 (8), the party claiming the deduction need not show that any profit was in fact earned by the expenditure in question, and it is enough if the expenditure was incurred in the course of trade wholly and exclusively made for the purpose of the trade. Also, “a sum or money expended not of necessary and with a view to direct and immediate benefit to the made for the purpose of the trade. Also “a sum or money expended and in order indirectly to facilitate the carrying on of the business may yet be expended wholly and exclusively for the purposes of the trade” (vide observation of Viscount Cave LC in Atherten v. British Insulaton & Helsby Cables Ltd., 10 T.C 155, 191 (HL) (9) which was quoted with approval and applied by the Supreme Court of India in Eastern Investments Ltd. v. C.I.T at page 5 (supra); and in Commissioner of Income-tax v. Chandulal Keshavlal & Co. at pages 601, 611 (supra).
    11. It is in the light of the above principles that the question in the present case is to be considered. As submitted by the assessee and accepted by the Appellate Tribunal, it cannot be disputed that the staging and sponsoring of the tournaments and the reports in the newspapers day after day about the D.C.M Tournaments would certainly bring the name of the D.C.M Group into prominence with the consequent advertising value for the company. The view of the Income-tax Officer, which was rightly rejected by the Appellate Assistant Commissioner and the Appellate Tribunal, that the holding of the tournaments does not have any connection with the business of the assessee, and that the readers of the reports in the newspapers would not be connecting in their minds the name of the tournament with the name of the company is not sound. Continuous and persistent reference to the letters ‘D.C.M’ meaning Delhi Cloth Mills would naturally make it almost a household expression, and the same would get impressed in the minds of the readers of the reports in the newspapers advertisement media. Further, as submitted on behalf of the assessee and accepted by the Appellate Tribunal, the holding of the tournaments by the D.C.M Group provides opportunities to the employees of the Mills to participate and also to witness such tournaments, and thus operates as an amenity provided for the recreation of the employees. The furnishing of such amenities would go a long way to help the business of the assessee. We, therefore, agree with the view taken by the Appellate Tribunal and hold that the expenditure incurred by the assessee in organising Football and Hockey Tournaments, was an allowable deduction under Section 10 (2) (xv) of the Income-tax Act, 1922. We accordingly answer the question referred in the affirmative.
    In the circumstances of the case, the parties are directed to bear their own costs.
    Reference answered in affirmative.
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    Comments

    Cit v. Delhi Cloth & General Mills Co. Ltd.
    (Apr 19, 1978)