Citation Codes

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Case Number

Income-tax References Nos. 32 and 33 of 1978

Judges

Hon'ble Mr. Justice Bansilal Shivlal Kapadia
Hon'ble Mr. Justice Aziz Mushabber Ahmadi

Acts

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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

The assessee is a limited company engaged in manufacturing cement. The two relevant assessment years are 1970-71 and 1971-72. For the first year the assessee donated 99.44 metric tonnes of cement (valued at Rs. 11,595) to the Collector of Surat for flood relief. For the second year the assessee donated cement valued at Rs. 991 to Arya Kanya Mahavidyalaya, Baroda. The Income-tax Officer disallowed the assessee's claims for deduction under section 80G on the ground that the donations were made in kind and not in cash.

On the donation point, the Appellate Assistant Commissioner allowed the assessee's claim (relying on CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd.), and the Revenue appealed to the Tribunal, which dismissed the Revenue's appeal on that point.

Separately, the assessee claimed expenditure for advertisements in various souvenirs: Rs. 19,185 for 1970-71 and Rs. 13,026 for 1971-72. The Income-tax Officer treated parts of these amounts as donations and disallowed them as business expenses while granting some rebate under section 80G. The Appellate Assistant Commissioner made adjustments (including treating part as disallowance in one year) and the Revenue appealed certain allowances to the Tribunal.

The Tribunal ultimately disallowed Rs. 5,000 in each year as being for non-business purposes (finding no apparent link between the assessee's business and the souvenirs where advertisements were given) and allowed the balance. Both the Revenue and the assessee applied for references under section 256(1) of the Income-tax Act, and the Tribunal referred two questions to this court for opinion.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to relief under section 80G of the Income-tax Act, 1961, in respect of Rs. 11,595 for the assessment year 1970-71 and Rs. 991 for the assessment year 1971-72 being the value of cement donated by the assessee to the Collector of Surat for flood relief and Arya Kanya Mahavidyalaya, respectively?
Whether, on the facts and in the circumstances of the case, and keeping in view Circular No. 203 dated July 16, 1976 issued by the Central Board of Direct Taxes, the Tribunal was justified in law in holding that a sum of Rs. 5,000 in each of the years should be disallowed out of advertisement expenses in respect of advertisements given in various souvenirs when there was no link between the assessee's business and the souvenirs?

Arguments of the Parties

Revenue's Arguments (as presented by Mr. S. N. Shelat)

The assessee donated cement in kind (i.e., not in cash) and therefore is not entitled to relief under section 80G of the Income-tax Act.
The Tribunal's treatment of the souvenir advertisements (disallowing Rs. 5,000 in each year as non-business/donation) was supported by a view that there was no link between the assessee's business and the souvenirs.
Relied (as counsel) on the judgment in CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875, which held that donations of shares were not deductible under section 80G where there was no finding that the donation was in substance a donation of cash.

Assessee's Arguments (as presented by Mr. K. C. Patel)

The donated cement was stock-in-trade (one of the assessee's products) and, in substance, amounted to a donation equivalent to cash; therefore relief under section 80G should be available.
The assessee relied on the decision in Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj) where cement donated by the assessee was treated as a donation in substance equivalent to cash and relief under section 80G was allowed for the value involved.
The assessee submitted that Circular No. 203 dated July 16, 1976 (CBOD) ought to be applied in determining the deductibility/character of expenditures on souvenir advertisements.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd. [1973] 91 ITR 166 (Mys)	Used by the Appellate Assistant Commissioner as supporting authority to allow the assessee's claim under section 80G in the lower appellate order.	The court records that the Appellate Assistant Commissioner relied on this decision in allowing the deduction; the Tribunal confirmed the Appellate Assistant Commissioner's order. The court does not itself apply this precedent substantively in its opinion but notes its use below.
Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj)	Held that where the substance of a transaction was to make a donation in cash (though given as cement), the value of the cement was entitled to relief under section 80G.	The court observed that this earlier judgment (in respect of an earlier assessment year) found the substance to be a cash donation and was relied upon by the Appellate Assistant Commissioner and by the assessee. However, because no similar finding of substance was recorded in the present proceedings, the court declined to answer the first referred question and directed remand for a finding in the light of relevant authorities.
CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875 (Guj)	Established that donations in kinds (e.g., shares) are not entitled to deduction under section 80G where there is no finding that the donation was in substance a donation of cash.	The court directed that the Tribunal, on remand, should record a finding whether the donation was in substance one of cash and to dispose of the matter applying the ratio of this case (i.e., that absence of a finding of substance precludes allowance under section 80G).

Court's Reasoning and Analysis

The court addressed each referred question by examining whether the authorities below had made the necessary factual findings and by considering the legal principles reflected in cited precedents and the Circular.

On the first question (deductibility under section 80G of the value of cement donated):

The court carefully reviewed the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal to determine whether any of these authorities had made a clear and definite finding that, in substance, the donations were equivalent to donations in cash rather than donations in kind.
Although the Appellate Assistant Commissioner had followed an earlier allowance made for the assessment year 1969-70 (which culminated in the Saurashtra Cement judgment), the court found that none of the authorities in the present proceedings had expressly recorded the crucial factual finding that the transaction was in substance a cash donation.
Because the presence or absence of such a finding is decisive under the legal principles stated in the decisions (notably Dhirajben R. Amin), the court concluded it could not properly answer the first referred question without the Tribunal first making the necessary factual determination.
Accordingly, the court refused to answer the first question and directed that the matter be remitted to the Tribunal to record a finding on whether the donation was in substance a cash donation and then dispose of the issue applying the ratio of the cited authorities (including Dhirajben R. Amin).

On the second question (disallowance of Rs. 5,000 in each year as non-business advertisement expense and relation to Circular No. 203):

The court noted that the Tribunal mentioned Circular No. 203 (dated July 16, 1976) in its order but did not deal with its substance or apply it in the analysis.
The Tribunal had found "no link apparent between the assessee's business and the souvenirs" and, on that basis, disallowed Rs. 5,000 for non-business/donation purposes in each year.
The court criticized the Tribunal's approach that an absence of an apparent link between the business and a particular medium (such as a newspaper or souvenir) justifies treating advertisement expenditure as non-business. The court observed that normally an advertiser need not have any intrinsic link with the medium (e.g., newspapers) to justify business advertising.
The court further observed that there was no definite factual finding distinguishing how much of the claimed amounts represented pure donations and how much represented legitimate advertisement expenditure. Because that factual clarity was lacking, the court declined to decide the issue itself.
The court directed the Tribunal to give a definite finding on whether the amounts were donations or business advertisement expenditures and to do so in the light of Circular No. 203 of the Central Board of Direct Taxes.

On the procedural outcome, the court emphasized that in the absence of the necessary factual findings below it was not appropriate to answer either referred question and remitted the matters for factual findings and disposal in accordance with the applicable authorities and the Circular.

Holding and Implications

The court declined to answer both referred questions and disposed of the references, directing remand to the Tribunal for specific factual findings; the references are disposed of with no order as to costs.

Implications:

Direct effect on the parties: The Tribunal must now record clear and definite findings on (a) whether the donations of cement were, in substance, donations of cash (so as to determine entitlement to relief under section 80G) and (b) whether the amounts claimed for advertisements in souvenirs were donations or deductible business advertisement expenditures, applying Circular No. 203 where relevant. The Tribunal is to decide the issues in light of the authorities cited (including the ratio in CIT v. Smt. Dhirajben R. Amin and the Saurashtra Cement decision where applicable).
No broader legal conclusion was pronounced by this court on the substantive issues because the court declined to decide the referred questions pending factual findings below. The opinion therefore does not itself set a new precedent on the substantive questions; it directs the Tribunal to apply existing precedent and the CBOD Circular when rendering its determinations.

Disposition: References disposed of; no order as to costs.

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Commissioner Of Income-Tax v. Saurashtra Cement And Chemicals Industries Ltd. (And Vice Versa)

1. The Tribunal has referred the following two questions to this court for opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to relief under section 80G of the Income-tax Act, 1961, in respect of Rs. 11,595 for the assessment year 1970-71 and Rs. 991 for the assessment year 1971-72 being the value of cement donated by the assessee to the Collector of Surat for flood relief and Arya Kanya Mahavidyalaya, respectively ?

(2) Whether, on the facts and in the circumstances of the case, and, keeping in view the Circular No. 203, dated July 16, l976, issued by the Central Board of Direct Taxes, the Tribunal was justified in law in holding that a sum of Rs. 5,000 in each of the years should be disallowed out of advertisement expenses in respect of advertisements given in various souvenirs when there was no link between the assessee's business and the souvenirs ?"

2. The first question is referred at the instance of the Revenue while the second question is referred at the instance of the assessee.

3. The facts leading to the present reference are as under :

4. The relevant assessment years are 1970-71 and 1971-72. The assessee is a limited company which manufactures cement. In the first year, the assessee gave 99.44 metric tonnes of cement, one of its products, valued at Rs. 11,595 to the Collector of Surat for flood relief, in Surat District. Similarly, in the second year, the assessee donated cement valued at Rs. 991 to Arya Kanya Mahavidyalaya, Baroda. In both the assessment years, the Income-tax Officer held that the assessee's claim under section 80G of the Income-tax Act, 1961, for donation was not entertainable, as the donation should be in cash only. The assessee being aggrieved by the said order, carried the matter before the Appellate Assistant Commissioner, who allowed the assessee's claim on this aspect relying on the decision in CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd. [1973] 91 ITR 166 (Mys). Being aggrieved by the said order, the Revenue preferred an appeal before the Tribunal. The Tribunal dismissed the Revenue's appeal on this point.

5. Similarly, the assessee claimed Rs. 19,185 as expenditure for advertisements in various souvenirs. The Income-tax Officer, however, found that Rs. 19,185 were in the nature of donation given to various institutions and he disallowed the same, but allowed rebate under section 80G on the amount of Rs. 15,884. The Appellate Assistant Commissioner noted that the advertisements were in the souvenirs of social, cultural and charitable institutions and related to the donations to these institutions and he, therefore, confirmed the Income-tax Officer's order on this point.

6. Similarly, in the second year, the Income-tax Officer disallowed Rs. 13,026, but granted rebate under section 80G of the Act of Rs. 4,630. In appeal, the Appellate Assistant Commissioner disallowed the amount of Rs. 3,256 as being 1/4th of Rs. 13,026 and allowed the amount of Rs. 9,770. The assessee did not prefer any appeal against the same, but the Revenue preferred an appeal against the allowance of Rs 9,770.

7. It was urged before the Tribunal on behalf of the assessee that the Central Board of Direct Taxes has issued Circular No. 203, dated July 16, 1976, [1976] 104 ITR 52 (statutes) and that should be applied in the present case. However, the Tribunal disallowed Rs. 5,000 in each of the two years after finding that in respect of the same item there was no link between the assessee's business and souvenirs in which the advertisements were given and that they were in the nature of donations. On estimates, the Tribunal disallowed Rs. 5,000 as being the amount for non-business purposes and it allowed the balance amount out of the claims of the assessee.

8. On account of the aforesaid orders of the Tribunal, both the assessee as well as the Revenue made applications for reference and the reference of the aforesaid two questions have been made under section 256(1) of the Act.

9. Mr. S. N. Shelat, the learned counsel appearing for the Revenue, submits that the assessee has donated the cement and, therefore, the assessee is not entitled to get relief under section 80G of the Act inasmuch as the assessee has donated in kind and not in cash.

10. Mr. K. C. Patel, the learned counsel appearing for the assessee, submits that the cement was one of the products of the assessee-company and it was stock-in-trade and in substance it amounted to donation in cash.

11. In support of the rival contentions, certain decisions were cited before us. According to Mr. K. C. Patel, the decision in Saurashtra Cement & Chemical Industries Limited v. CIT [1980] 123 ITR 669 (Guj) is in respect of cement and donated by the assessee for the preceding year and in the said case it was held that since the substance of the transaction was to make a donation in cash, the valuation of the cement bags amounting to Rs. 1,051 was entitled to the relief under section 80G of the Act.

12. Mr. Shelat has relied on the subsequent judgment of this court in CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875. In the said case it was held that where shares were donated to two charitable trusts and there was no finding that the donations in substance were donations of cash, it was held that the donations were not entitled to deduction under section 80G of the Income-tax Act.

13. On perusal of the Income-tax Officer's order, it is clear that the claim is disallowed under section 80G of the Act for donation given in kind of the Collector, Surat, for flood affected area of Surat District. When the matter was argued before the Appellate Assistant Commissioner, it was pointed out that a similar point was in dispute for the assessment year 1969-70 and in appeal for the assessment year 1969-70 the assessee's claim was allowed under section 80G of the Act. That was the subject-matter of the reference and the said judgment in Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj). Accordingly, in the present case, the Appellate Assistant Commissioner directed the Income-tax Officer to allow the deduction under section 80G of the Act. Similarly, for the earlier year 1970-71, the Appellate Assistant Commissioner allowed the claim of deduction under section 80G of the Act as mentioned in para 11 of his order. While the Tribunal dealing with the point for both the years in para 22 and para 26 of its order held that only because the assessee donated its product to the Collector for famine relief fund and did not donate in cash, it is not disqualified from the benefit of relief under section 80G of the Act. With this observation the Tribunal held that it does not see ally reason to interfere with the order of the learned Appellate Assistant Commissioner.

14. We have carefully perused the reasonings to find out as to whether there is any clear and definite finding that in substance the transaction of donation was in cash and not in kind. The Tribunal has simply confirmed the finding of the Appellate Assistant Commissioner and the Appellate Assistant Commissioner has simply followed the order for assessment year 1969-70. A similar point was in dispute in respect of the assessment year 1969-70 which ultimately resulted in the judgment in Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj) wherein it was found that the substance of the transaction was to make a donation in cash and, hence, the assessee was entitled to relief under section 80G of the Act for the value of the cement bags amounting to Rs. 1,051. However, no such finding is given by any of the authorities below in the present case. In the absence of such finding, we do not desire to answer the first question referred to this court. In that view of the matter, the matter will be required to be sent back to the Tribunal for recording a finding as to whether the transaction was in substance one of cash and not of kind and to dispose of the same on the ratio of the judgment in CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875 (Guj).

15. On the second question, it is submitted by Shri K. C. Patel, the learned counsel appearing for the assessee, that Circular No. 203, dated July 16, 1976, [1976] 104 ITR 52 (statutes) which was cited and which has been referred to by the Tribunal in its order, has not been considered. On perusal of the order of the Tribunal, it appears that in para 8 thereof a reference to the Central Board of Direct Taxes, Circular No. 203, dated July 16, 1976, has been made, but nowhere in the order, it has been dealt with by the Tribunal.

16. While dealing with the point with regard to the expenditure incurred on souvenir advertisements, the Tribunal has observed in para 11 of its order as under :

"11. On reference to bills, we do find some items which are in the nature of donations and there is no link apparent between the assessee's business and the souvenirs where the advertisement is given.. In the circumstances, we hold that disallowance of Rs. 5,000 for non business purposes would be fair and reasonable in the circumstances of the case. Consequently, the assessee would not be entitled to rebate under section 80G."

17. When the question is with regard to the expenditure incurred for advertisements either in newspapers or in souvenirs, we find it difficult to accept the reasoning of the Tribunal to the effect that there is no link apparent between the assessee's business and the souvenirs where the advertisement is given. Normally, when any assessee gives any advertisement in the newspaper, he has no link with the newspaper. Similarly, when the advertisement is given in the souvenir, then there need not be any link between the assessee's business and the souvenir. We, therefore, think that this approach of the Tribunal was an erroneous one.

18. From the reasonings quoted from para 11 of the order of the Tribunal, it appears that the Tribunal has disallowed the sum of Rs. 5,000 as it was for non-business purposes and further also held that the assessee would not be entitled to rebate under section 80G of the Act. It may be mentioned that for the assessmenty year 1970-71, the assessee has claimed an amount of Rs. 19,185 and for the assessment year 1971-72, the assessee has claimed an amount of Rs. 13,026 as expenses incurred for advertisements in souvenirs. There is no definite finding as to out of the aforesaid claims, how much was the amount of donation and how much was the amount incurred for advertisements. If the entire amount is treated as the amount of donations, then the assessee's claim for relief under section 80G of the Act should be considered. If the whole amount of the above claims is treated as incurred for advertisements in souvenirs, that should be considered as the amount of expenditure incurred for business. Thus, there is no clear finding on the point as to whether the entire amount of the aforesaid claims was treated as donations to the respective institutions who brought out the souvenirs or that they were the amount of expenditure spent for advertisements for the business. In the absence of any definite finding, we would not be inclined to give a finding on the issue and the Tribunal is, accordingly, directed to give a definite finding on this point in the light of the Circular No. 203, dated July 16, 1976, of the C.B.D.T. [1976] 104 ITR 52 (statutes).

19. Accordingly, we decline to answer both the questions. The references are disposed of with no order as to costs.

Commissioner Of Income-Tax v. Saurashtra Cement And Chemicals Industries Ltd. (And Vice Versa)

Structured Summary of the Provided Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments (as presented by Mr. S. N. Shelat)

Assessee's Arguments (as presented by Mr. K. C. Patel)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. Saurashtra Cement And Chemicals Industries Ltd. (And Vice Versa)

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