Income-tax---

----Business expenditure---General principles---Amount spent by co-operative society in giving presents to its members on its silver jubilee---Expenditure incurred with a view to preserving and augmenting business---Amount deductible---Indian Income Tax Act, 196.1, S.37.

Before an expenditure can be claimed under section 37 of the Income Tax Act, 1961, the following essential conditions will have to he satisfied, namely: (1) It must be expenditure in the nature of revenue expenditure and not in the nature of capital expenditure. (2) It must be laid out or expended wholly and exclusively for the purpose of the business or profession. (3) It must not be of the nature described in sections 30 to 36 and section 80VV (which is enforced with effect from April 1, 1976). The true lest of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader.

The assesses was a cooperative society engaged in the business of marketing of cotton. It had filed its return under the Income Tax Act, 1901,1 or the assessment year 1974-75. In the return filed, it had claimed expenditure of R,s.2,29,386 said to have been incurred in giving presents to the members of' the society on the occasion of its silver jubilee celebrations. The Income Tax Officer in. his assessment order allowed these expenses, but the Commissioner of Income-tax, by order passed under section 263, considered the relief granted by the Income Tax Officer to be erroneous and disallowed it. The Tribunal agreed with the reasonings and the conclusion of the Commissioner of Income -tax. On a reference:

Held, that the society was a separate legal entity having its own business and business income. In the course of augmenting its business and maintaining it if the society as a corporate body decided to give presents to its members it could not be said that the society was not doing something as a prudent businessman. The society had decided to give two stainless steel tumblers to members who joined the society after October 31, 1968, and four stainless steel tumblers to members who joined earlier. Thus, the money value of the tumblers did not depend upon the proportion of shares held by the members but with their seniority. The expenditure could not be treated as dividend or as "rebate". The expenditure in question was incurred by the assessee for preservation of its business and to see to it that its members continue to deal with the society in future in the same way they had done in the past 25 years. The silver jubilee afforded an occasion for the society to incur this expenditure for keeping the members in good humour solely with the object of preserving and bettering its business prospects in future. It was deductible as business expenditure.

CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC); CIT v. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 (SC) and CIT v. Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj) applied.

CIT v. Dascroi Taluka Co-operative Purchase and Sales Union Ltd. (1980) 126 ITR 413 (Guj.) approved.

Andhra Sugars Ltd. v. CIT (1988) 171 ITR 209 (AP) fol.

Amarjothi Pictures v. CIT (1968) 69 ITR 755 (Mad.); Andrew Yule and Co. Ltd. v. CIT (1903) 49 ITR 57 (Cal.); CIT v. S.L.M. Maneklal Industries Ltd. (1977) 107 ITR 133 (Guj.) and CIT v. Tata Sons Pvt. Ltd. (1978) 111 ITR 290 (Bom.) ref.

JUDGMENT

S.B. MAJMUDAR, J.---A Division Bench of this Court consisting of one of us, R.C. Mankad, .I., sitting with AR Ravani, J., has by its order, dated March 12, 1980, referred this matter to a larger Bench for reconsideration of the decision of its earlier Division Bench of this Court in the case of CIT v. Dascroi Taluka Cooperative Purchase and Sales Union Ltd. (1980) 126 ITR 413. In order to appreciate .the scope and ambit of this reference, it will be necessary to note a few relevant introductory facts. The applicant, Karjan Co operative Cotton Sales Ginning and Pressing Society, Baroda, is the assessee. It is a co-operative society engaged in the business of marketing of cotton. It had filed its return under the Income Tax Act, 1961, for the assessment year 1974-75. In the return riled, it had claimed expenditure of Rs.2,29,386 said to have been made in giving presents to the members of the society on the occasion of its silver jubilee celebrations. The Income Tax Officer, in the assessment order, allowed these expenses, but the Commissioner of Income -tax, vide his order passed under section 263 of the Act, considered the relief granted by the Income Tax Officer to be erroneous in so far as it was prejudicial to the interests of the Revenue as, according to him, this, wits a non-business expenditure laid out towards the purchase of stainless steel tumblers for giving as gifts to shareholders and as such he issued a show-cause notice. In reply, the assessee submitted that the society was registered in the year 1948. It completed 25 years of its existence in 1973 and as such it was decided to celebrate its silver jubilee and that, in pursuance of the aforesaid decision, the managing committee resolved that two stainless steel cups (tumblers) be given as a token of remembrance to every new member of the society enrolled after 1908 and it was also resolved that four such cups be given to its old members who were enrolled before 1968. 1t was also submitted that this gesture of giving a token of remembrance was expected to lead to the development and progress of the assessee cooperative society. But the Commissioner of Income-tax was not convinced with the plea of the assessee. He set aside the order passed by the Income-tax Officer and directed him to disallow the entire claim of Rs.2,29,386.

The assessee carried the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal, by its order, dated December 28, 1979, agreed with the reasonings and the conclusion of the Commissioner of Income- tax. At the request of the assessee society a question was raised for reference to the High Court under section 256(1) of the Income-tax Act, 1961. The said question reads as under:

"Whether, on the facts and in the circumstances of the case, the expenditure of Rs.2,29,386 incurred by the assessee on distribution of presents to its shareholders on celebration of its silver jubilee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?"

When the referred question came up for consideration before the aforesaid Division Bench of this Court, reliance was placed on behalf of the assessee on the earlier Division Bench judgment of this Court in Dascroi Taluka Cooperative Purchase and Sales Union Ltd.'s case (1980) 126 ITR 413. In the view of the aforesaid Division Bench, the said decision required reconsideration and that is how the reference was made to the larger Bench. Accordingly, by the order of the Hon'ble Chief Justice, this reference has been placed before us for decision.

Before we proceed to deal with the ratio of the decision of this Court in Dascroi Taluka Cooperative Purchase and Sales Union Ltd.'s case (1980) 126 ITR 413, it will be necessary to have a look at the relevant statutory backdrop in the light of the settled legal position. The referred question has to be answered in the light of section 37 of the Income-tax Act, 1961. The said provision is found in Chapter IV dealing with computation of total income. Amongst the heads of income chargeable to income-tax are found separate earmarked topics concerning these heads. One of such heads is categorised as head D dealing with profits and gains of business or profession. Section 28 provides for chargeable income, under the head "profits and gains of business or profession" as mentioned therein. It is not in dispute that the income earned by the assessee-society out of its business of ginning and pressing of cotton and marketing the same is chargeable to income-tax. As per section 29, income from profits and gains of business or profession as referred to in section 28 has to be computed in accordance with the provisions contained in sections 30 to 43A. In that group of sections is found section 37 which reads as under:

"37. General.---(1) Any expenditure (not being expenditure of the nature as described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head `Profits and gains of business or profession'."

The assessee-society in its return for the. relevant assessment year permissible expenditure the amount spent by it for purchasing the stainless steel cups (tumblers) which were given to the members as presents on the occasion of its silver jubilee celebrations. The short question is whether this expenditure was a permissible expenditure under section 37 of the Act, not being an expenditure in the nature of capital expenditure or personal expenses of the assessee-society, and being laid out or expended wholly and exclusively for the purpose of the business of the assessee-society. The Income-tax Officer held it to be a permissible expenditure covered by the said provision. The Commissioner of Income-tax and the Tribunal thought otherwise. The question is as to what is the real nature and characteristic of this expenditure? Is it covered by section 37 or is it outside its scope and ambit? -

At this juncture, it will be profitable to have a look al the settled legal position on this aspect as flowing from various decisions of tote Supreme Court and High Courts to which our attention was invited by learned counsel appearing for the respective parties before us. In the case of CIT v. S.L.M. Maneklal Industries Ltd. (1977) 107 ITR 133, a Division Bench of this Court, consisting of B.J. Divan, C.J. and P.D. Desai, J., was concerned, amongst other things, with the question whether an amount of Rs.2,125 spent by the assessee company in the relevant year for presentation of articles to the sales manager and other officials of the foreign collaborator, SLM, was an amount which should be treated to be a permissible business expenditure allowable under section 37 of the Act. Answering this question in favour of the assessee and against the Revenue, BJ. Divan, C.J., speaking for the Division Bench, held as under (headnote);

"Since the expenditure of Rs.2,125 was incurred by the assessee company for the purpose of establishing good image for itself and for keeping the relations with the foreign collaborators working smoothly, it must be held that this amount was spent by the assessee-company for the purpose of business. For falling under section 37 of the Act, the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee. These presentations of articles could never be described as capital expenditure nor were they personal expenditure of the assessee-company. It must be held that the sum of Rs.2,125 was expended wholly and exclusively for the purpose of the business and answered the tests laid down for the allowance of the claim under section 37 of the Act:"

In this connection, it was observed that S.L.M. and the assessee company had to maintain good relations and by keeping the representatives of the foreign collaborators in good humour, the work of the assessee-company vis-a-vis the foreign collaborators would be smoothened considerably, it was clearly an act of good management and good manager ship to generate goodwill and such goodwill would help and was bound to help the assessee-company in keeping good relations-with the employees of the foreign collaborators working smoothly and on proper lines. Since this expenditure of Rs.2,125 was incurred by the assessee-company for the purpose of establishing a good image for itself and for keeping relations with the foreign collaborators working smoothly it must be held that this amount was incurred by the assessee-company for the purpose of business.

In the present case, it is the contention of the assessee-society that these presents were given to the members to keep them in good humour as it was an occasion of celebration of the silver jubilee of the assessee-society and in order to see that these members continue to supply their cotton for the purpose of ginning and pressing to the assessee-society and for getting it marketed through it, this type of presents were found necessary for augmenting and maintaining the business prospects of the society. It was submitted by learned counsel for the assessee-society that in these days of keen competition it was absolutely necessary for the assessee-society to maintain goodwill amongst its members and to lure them to continue to do their business with the society. That income from the work of ginning and pressing the cotton of the members and from marketing the same was the only source of income for the society and, for earning this income and for ensuring the same over future years, this type of expenditure was, found to be a prudent act of management on the part of the society, and, therefore; this expenditure must be treated as having been incurred solely and exclusively for the purpose of the business of the society. We find considerable force in these contentions. The aforesaid decision of this Court was sought to be distinguished by learned counsel for the Revenue on the ground that, in that case, the assessee-company had to keep the foreign collaborators in good humour, that they were outsiders while, in the present case, the articles of presents were distributed amongst its members by the society. In our view, this distinction does not detract from the real ratio of the judgment centring round the scope of section 37 of the Act.

The second decision to which our attention was invited is a decision rendered by the High Court of Bombay in the case of CIT v. Tata Sons Pvt. Ltd. (1978) 111 ITR 290. In that case, an amount was spent by the managing agency company on the occasion of the golden jubilee celebrations of the managed unit being the Ahmedabad Advance Mills, Ahmedabad. The question was whether this amount was a permissible business expenditure under section 37 of the Act. It was held that this expenditure was made by the managing agency company wholly and exclusively keeping in view the business interests of the assessee-company. It is obvious that if the managed mills continue to run the managing agency, commission would get ensured.

The third decision to which our attention was invited by learned counsel for the assessee was rendered by the Madras High Court in the case of Amarjothi Pictures v. CIT (1968) 69 ITR 755. The Division Bench of the Madras High Court, speaking through Veeraswami, J., in that case, was concerned with an analogus provision in the earlier Indian Income Tax Act, 1922, being section 10(2)(xv). In that case, the assessee was a partnership firm carrying on the business of distribution and exhibition of films. It had taken the picture "Kalyana Parisu" for exhibition in the city of Madras from the producers, Trinity Pictures, on a minimum guarantee of Rs.70,000 on which fifteen per cent. was payable. If the collection exceeded that percentage, 50 per cent. was agreed to be paid. The picture ran for 25 weeks and that was the occasion for celebration of the silver jubilee. On that occasion, the assessee company spent Rs. 13,376 towards the celebration. The Income-tax Appellate Tribunal disallowed the said expenditure as, according to it, there was no casual connection between the expenditure and the taking of further leases of the picture or collections therefrom by the assessee-company. Disagreeing with the view of the Tribunal, the Division Bench of the Madras High Court, speaking through Veeraswami, J., held that the expenditure was clearly permissible under section 10(2)(xv); that it was incurred in the course of carrying on the business of exhibition of films; that, on the occasion of the celebration, there was presentation of shields to the theatres, artistes, and others. Twenty-five weeks of exhibition from the point of view of the assessee was an important occasion in carrying on the business which required celebration. Evidently, the object of the celebration was publicity, and that publicity would only have been with a view to step up the collections at a time when the collections might otherwise be dwindling.

The fourth decision relied on by learned counsel for the assessee is rendered by the Andhra Pradesh High Court in the case of Andhra Sugars Ltd. v. CIT (1988) 171 ITR 209. The Division Bench of the Andhra Pradesh High Court, in that case, was concerned with the question whether the assessee company which was a leading company manufacturing and selling sugar in Andhra Pradesh was entitled to claim Rs.77,087 spent by it on giving mementoes to its shareholders and directors on its silver jubilee. The Revenue contended that this expenditure was not incurred in connection with the business of the assessee company. Allowing the said claim the Division Bench of the Andhra Pradesh High Court, speaking through Y.V. Anjaneyulu, J., held that the shareholders (mostly sugarcane growers) could not be considered distinct and separate from other persons having business connections with the company. Over a long period, the shareholders, by their conduct, had contributed to the prosperity of the company and there was nothing uncommon in recognising the part played by them by giving small mementoes. As far as the directors were concerned, they had worked for the company and played a significant part in the conduct of its business. Considering the magnitude of the income of the assessee and the small expenditure of about Rs.35 for each memento, it could not be said that the expenditure was not wholly and exclusively incurred for purposes of its business.

The aforesaid decision squarely covers the question raised for our consideration in the present proceedings and wholly supports the case of the assessee. The reasoning adopted by the Division Bench of the Andhra Pradesh High Court commends itself to us and we respectfully concur with the same.

We may now turn to two decisions of the Supreme Court on the point. In the case of CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140, the assessee-respondents company had spent certain amounts for discharging the estate duty liabilities on the death of its shareholder not domiciled in India. These amounts were paid by the company under section 84 of the Estate Duty Act, 1953. The question was whether these amounts were permissible expenditure covered by section 10(2)(xv) of the Indian Income-tax Act, 1922, as business expenditure. Answering the question against the assessee, the Supreme Court, speaking through Subba Rao, J., held that these payments had nothing to do with. the conduct of the business of the company. The fact that, on its default, if any, in the payment of the dues, the Revenue might realise the amounts from the business assets was a consequence of the default of the company in not discharging its statutory obligations but that did not make the expenditure any the more expenditure incurred in the conduct of the business. The obligation of the company to pay estate duty under section 84 of the Estate Duty Act, 1953, was a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. The Supreme Court, in that case, examined the scope and ambit of section 10(2)(xv) of the Act and held that the expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title, it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of the business. However wide the' meaning of the expression may be, its limits are implicit in it. The purpose shall be the purpose of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory.

The aforesaid decision of the Supreme Court, relied on by learned counsel for the Revenue, instead of helping the Revenue on the facts of the present case, supports the case of the assessee-society as the expenditure incurred by the society in giving presents to its members on the occasion of its silver jubilee was wholly and exclusively incurred with a view to running its business profitably in the future. In any case, the said expenditure was incurred with a view to preserving the business and for protecting it. It was incurred by the society as a person carrying on the business of ginning, pressing and selling cotton supplied by its members.

The next decision of the Supreme Court is in the case of CIT v. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756. In that case, the assessee-company alongwith V and L were partners in a managing agency firm with 50 per cent. 25 per cent. and 25 per cent. shares, respectively. At the instance of V, a large sumo of money was advanced by the managed company to another firm at Calcutta. When the demand for repayment was made, the Calcutta firm repudiated the claim and, out of the loss of Rs.1,90,092 to the managed company, the sum of Rs.95,092 was agreed to be borne by L, the assessee company and R, the brother of V, who was inducted into the managing agency firm as a partner in place of V. The assessee's claim to have the sum of Rs.9,500, which was paid by it to the managed company during the previous year relevant to the assessment year 1962-63 in partial discharging of its liability of Rs.47,500, deducted as business expenditure, was disallowed by the Income Tax Officer and the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer on the ground that the amount was actually the loss of a firm which was no longer in existence, that the loss had been borne by the assessee on personal considerations and that the managing agency firm had not claimed the loss in its return. The Appellate Tribunal reversed the order of the Appellate Assistant Commissioner and allowed the assessee's claim. The High Court, on reference of the question, held that the assessee was entitled to the deduction claimed. On further appeal to the Supreme Court by the Revenue, the Supreme Court, speaking through Venkataramiah, J., upheld the decision of the High Court and the claim of the assessee. While deciding the said question, the Supreme Court made the following pertinent observations (at page 760):

"The true test of an expenditure laid out Wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader."

The observations of Subba Rao, J.; in the earlier Supreme Court decision in CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140, were also pressed into service and thereafter it was further observed that the assessee incurred the expenditure in question to avoid any adverse effect on its reputation, to protect 'the managing agency which was an income earning apparatus and for retaining it with the reconstituted firm in which the interest of the assessee was the same as before. It was likely that, but for the expenditure, the fair name of the assessee would have been tarnished or rendered suspicious and the managing agency would have been terminated. The expenditure incurred on the preservation of a profit-earning asset of a business has always been held to be a deductible expenditure by Courts. In the circumstances; it is difficult to hold that the expenditure incurred by the assessee was either gratuitous or one incurred outside the trading activities of the assessee. The expenditure was, therefore, rightly held to be deductible under section 37.

The aforesaid decision of the Supreme Court also clinches the issue in favour of the assessee and against the Revenue. The expenditure in question was incurred by the assessee for preservation of its business and to see to it that its members continue to deal with the society in future in the same way they had been doing in the past 25 years. The silver jubilee afforded an occasion for the society to incur this expenditure fur keeping the members in good humour solely with the object of preserving and bettering its business prospects in the future. Such expenditure is, therefore, covered by section 37 of the Act, as authoritatively ruled by the Supreme Court in the aforesaid decisions.

We may now turn to another decision of this Court in the case of CIT v. Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546. The Division Bench of this Court, consisting of M.P. Thakkar, J. and one of us, R.C. Mankad, J., in that case, had to consider the question whether money contribution made to the municipality for providing underground pipeline for disposal of effluents is an allowable business expenditure under section 37 of the Income Tax Act, 1961. Answering the question in the affirmative in favour of the assessee, the Division Bench, speaking through M.P. Thakkar, J., as he then was, laid down the scope and ambit of section 37 of the Act as under (at page 554):

"Before an expenditure can be claimed under section 37 of the Act, the following essential conditions will have to be satisfied, namely:

(1) It must be expenditure in the nature of revenue expenditure and not in the nature of capital expenditure.

(2) It must be laid out or expended wholly and exclusively for the purpose of the business or profession.

(3) It must not be of the nature described in sections 30 to 36 and section 80V V (which is enforced with effect from April 1, 1976).

Subject to these three basic conditions being satisfied, some tests can be evolved on first principles. The tests can be divided into two categories, namely, (1) positive tests, (2) negative tests. One (at least one) of the positive tests must nod its head and none (not even one) must do so in order to affirmatively hold that the expenditure is a business expenditure, inter alia, incurred on account of commercial expediency.

As we pointed out earlier:

(1) one of the positive tests must be attracted, whereas

(2) none of the negative tests should be attracted."

Applying the aforesaid ratio of the Division Bench of this Court to the facts of the present case, it becomes clear that the expenditure in question has attracted at least two of the positive tests being tests Nos. 1 and 7. The expenditure was incurred with a view to bringing profits or monetary advantage either today or tomorrow and it was also expenditure incurred as a wise, prudent, pragmatic, ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects, subject to the expenditure being genuine and within reasonable limits. It is not the contention of the Revenue that this expenditure was not genuine or was not within reasonable limits. None of the negative tests also gets attracted. So far as the disputed expenditure is concerned, it would, therefore, remain a permissible deductible expenditure under section 37 of the Act even in the light of the ratio of the aforesaid Division Bench decision of this Court.

We may now turn to the decision of the Calcutta High Court in the ease of Andrew Yule and Co. Ltd. v. CIT (1963) 49 ITR 57, on which strong reliance was placed by learned counsel for the Revenue. In that case, the assessee company found itself in a predicament in which the then chairman of the board of directors of the assessee lost his life by the action of a riotous crowd while travelling otherwise than on the assessee's business. In the light of the said tragedy, the board of directors resolved to pay compensation to the murdered chairman's widow feeling that if compensation was not paid, there was the likelihood of unfavourable criticism of the company and repercussions from their employees. Pending a decision as to the full payment of compensation, the board resolved to pay an interim payment of Rs.1,20,000 and by a further resolution an additional amount of Rs.2,00,000 was paid, as final payment by way of compensation. The assessee-company claimed deduction of the sum of Rs.2,00,000 as business expenditure for the calendar year 1950. This claim was rejected by the Income-tax Officer on the ground that it was gratuitous. The Appellate Assistant Commissioner upheld the order of the Income-tax ,Officer. The Appellate Tribunal held that the amount paid can be treated to be a reasonable compensation based on commercial expediency alone, but as the liability for compensation was ascertained by and arose from the resolution dated January 22, 1951, it could not be allowed as an expenditure for the year 1950. On reference of the question arising out of the Tribunal's order, the Calcutta High Court took the view that on facts the payment of compensation to the chairman's widow was not expenditure laid out wholly or exclusively for the purposes of the assessee's business as the chairman's death had nothing to do with the object or purpose of the company. We fail for appreciate as to how this decision can be of any avail to learned counsel for the Revenue. The facts of the present case giving rise to the expenditure in question are entirely different. Any amount paid ex gratia and gratuitously and which had nothing to do with the business activities of the company would obviously not get covered by the sphere of section 37 of the Income Tax Act, 1961. Such are not the facts in the present case.

It is now time for us to turn to the Division Bench decision of this Court which has been made the subject-matter of the present reference to the Full Bench. In the case of CITv. Dascroi Taluka Co-operative Purchase and Sales Union Ltd. (1980) 126 ITR 413, on almost parallel facts, the question had arisen whether the expenditure incurred by the assessee-cooperative society in connection with travelling for purchase of certain articles and for the purchase of these articles which were to be presented to its members on the occasion of the silver jubilee celebrations was a permissible business expenditure as per section 37 of the Act. The Division Bench of this Court, consisting of B.J. Divan, CJ., and one of us (S.B. Majmudar, J.), answered this question in the affirmative in favour of the assessee. It was noted that the presentation of articles to its members having business transactions was on the occasion of the silver jubilee celebrations and the expenses incurred in connection with travelling for the purchase of the articles were expenses in the course of and for the purpose of the business and were intended as an incentive or encouragement to those members in the course of the business activities or transactions. In the light of these admitted facts as noted by the Tribunal, the Division Bench, speaking through B. J. Divan, CJ., held, placing reliance on the earlier decision of the Division Bench of this Court in the case of CIT v. S.L.M. Maneklal Industries Ltd. (1977) 107 ITR 133, that this expenditure was a permissible expenditure covered by section 37 of the Act. In this connection, it was further observed that since this expenditure was incurred by the assessee-society for the purpose of establishing a good image for itself and for keeping the relations with members smooth. it must be held that this amount was incurred by the assessee society for the purpose of business. Reliance was also placed in this connection on the decision of the Madras High Court in Amarjothi Pictures v. CIT (1968) 69 ITR 755 and the decision of the Bombay High Court in CIT v. Tata Sons Pvt. Ltd. (1978) 111 ITR 290. Applying the ratio of the decision in these cases to the facts of the case before them the Division Bench proceeded to observe further as under (at page 416):

"In our opinion, the principle laid down by this High Court in S.L.M Maneklal Industries' case (1977) 107 ITR 133, and by the Bombay and the Madras High Courts in the above two decisions would apply to the facts of the case before us. The utensils were distributed only amongst its members---individual members as well as other cooperative societies who were members of the assessee society. Under these circumstances, the amounts spent for giving presents to the members of the society on the occasion of the silver jubilee could be said to be expenditure incurred wholly and exclusively for the purpose of its business since this amount was spent for keeping alive its good image amongst its members and ensuring that goodwill and ensuring the continuity of business with the member societies as before."

The aforesaid decision clearly covers the facts of the present case; however, learned counsel for the Revenue submitted that the present reference has been made to a larger Bench by the earlier Division Bench for reconsidering this decision. We have given our anxious consideration to this aspect. In our view, the ratio of the decision of this Court in CIT v. Dascroi Taluka Cooperative Purchase and Sales Union Ltd. (1980) 126 ITR 413, does not require reconsideration, nor can it be said to be contrary to the established legal position. We have already discussed the true scope and ambit of section 37 of the Income Tax Act, 1961, as culled out from various other decisions of this Court as well as other High Courts and by the decision of the Supreme Court which have authoritatively pronounced on the subject. In the light of this settled legal position, therefore, it has to be held that if any expenditure is wholly or exclusively incurred by an assessee businessman with a view to preserving and augmenting his business prospects in future, such expenditure would be allowable, permissible expenditure as per section 37 of the Income Tax Act, 1961. The view taken by the Division Bench of this Court in Dascroi Taluka Cooperative Purchase and Sales Union Ltd.'s case (1980) 126 ITR 413: runs parallel to the aforesaid legal position and does not appear to be erroneous from any angle. Consequently, there remains no occasion to reconsider the said decision. We fully concur with the ratio of the decision of the Division Bench in that case. The stand of the Revenue that expenditure incurred by the society in giving presents to its own members would amount to expenditure for itself or application of its income amongst its members, also cannot be countenanced as the society is entirely a separate entity functioning under the provisions of the Gujarat Cooperative Societies Act, 1961, and is distinct from its members. Section 37 of the Gujarat Cooperative Societies Act, 1961, provides that a society, on its registration, shall be a body corporate by the name under which it is registered, with perpetual succession and a common seal and with power to acquire, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings, and

to do all such things as are necessary for the purpose for which it is constituted. As per section 96 of the Act, disputes can be contemplated even between the society on the one hand and its members on the other. Thus a society is a separate legal entity having its own business and business income. In the course of augmenting its business and maintaining it it' the society as h corporate body ` decides to give presents to its members and to commemorate silver jubilee celebrations it cannot be said that the society is not doing something as "a prudent businessman". We may state in fairness that learned counsel for the Revenue submitted that it is not his contention that amounts spent in this type of presents on the occasion of silver jubilee celebrations can be treated-to be either dividend or rebate. So far as the term "dividend" is concerned, section 2, subsection (8) of the Gujarat Cooperative Societies Act lays down that "dividend" means the amount paid, out of the profits of a society to a member in proportion to the shares held by him. In the present case, the resolution of the society which has been reproduced in the order of the Tribunal lays down that two 'steel glasses are to be given to members who joined the society after October 31, 1968, and four steel glasses arc to be given to members who joined earlier and that the accounts .be closed after adjusting the profits and losses of the current year. Thus, the money value of the stainless steel cups is not dependent upon the proportion of shares held by the concerned members, but on the contrary, it is linked up with the seniority of the members. It was, therefore, rightly not contended that this expenditure would be treated as dividend nor can it be treated as "rebate" as rebate is defined by section 2(16), to mean any payment made in cash or kind, out of the profits of a society, to a on the basis of his contribution to the business of member or any other person, the society. In fact, the value of the articles of presentation is in no way linked with the contribution of the concerned recipient to the business of the society. Consequently, the contention on behalf of the Revenue that thus expenditure is not permissible business expenditure cannot be accepted. As a result of the aforesaid discussion, it is held that the ratio of the decision of the Division Bench of this Court in CIT v. Dascroi Taluka Cooperative Purchase, and Sales Union Ltd. (1980) 126 ITR 413, lays down good law. The question, will referred for the opinion of this Court in the present reference, therefore have to be answered in the affirmative, in favour of the assessee and against the Revenue. Order accordingly.

M.BA./2257/T Order accordingly.