Income-tax---

----Business expenditure---Provisions of S.37 are general and those of S.80-G, Indian Income Tax Act, 1961 specific---Amount deductible under S.80-G cannot be claimed as deduction under S.37 of Indian Income Tax Act, 1961---Assessee, a businessman, making donations and claiming increased turnover in business-- No nexus established between donations made and business of assessee-- Expenditure not allowable deduction under S.37 (1) Indian Income Tax Act, 1961---Fifty per cent of expenditure allowable as deduction under S.80-G-- Indian Income Tax Act, 1961, Ss.37(1) & 80-G.

The provisions of section 37 of the Income Tax Act, 1961, are general in nature and the, provisions of section 80-G are specific. Applying the maxim generalia specialibus non derogant if an amount is liable for deduction under section 80-G, it cannot be claimed under the general provisions of section 37(1) of the Act. If a particular amount of expenditure falls within the category of donation, then the deduction as provided under section 80-G alone is applicable. For the purpose of claiming the benefit under section 37(1), it has to be proved that the expenditure was wholly and exclusively for the purpose of business. There may be a circumstance where an expenditure falls within the category of "wholly and exclusively for the purpose of business or profession" and also under section 80-G. In that case the option remains with the assessee to claim the expenditure under either of the aforesaid sections. But where there is no direct nexus to prove that it is wholly and exclusively for the purpose of business or profession, then it cannot be claimed under section 37(1). A future hope for advantage is in the nature of an expectation. The requirement of the section is that there must be a business in existence and the expenditure is wholly and exclusively for the purpose of business.

The assessee, who claimed to be a prominent businessman of a locality, made donations to various institutions like the Rotary Club, a sewa mandal, a trust and to the Chief Minister's Drought and Flood Relief Fund and claimed deduction of the same as business expenditure under section 37 of the Act as, by making such donations, the business of the assessee had increased. The Tribunal found that since there was no scheme or provision for relief to the affected employees of the assessee due to the floods, there was no nexus between the donation and the assessee's business and hence the assessee was not entitled to deduction of the expenditure under section 37 of the Act but was entitled to deduction of 50 per cent of the expenditure as provided in section $0-G of the Act. On a reference:

Held, that there was no direct nexus established between the expenditure by way of donations an the business of the assessee and hence the expenditure was not allowable under section 37(1), but 50 per cent deduction was allowable under section 80-G.

Vineet Kothari for the Assessee.

D.S. Shishodia, Senior Advocate with S. Bhandawat for the Commissioner.

JUDGMENT

V.K. SINGHAL, J. ---Both the abovementioned cases are being disposed of by this common order since the questions of law involved therein are identical.

In Reference No. 34 of 1985, the following questions have been referred by the Tribunal in respect of the assessment year 1982-83 under section 256(1) of the Income Tax Act, 1961:

"(1) Whether under the facts and circumstances of the assessee's case the hon'ble Tribunal was justified in holding that there was no nexus established in this case between giving of donation on the one hand and the business perspective of the firm on the other and, therefore, the same was not allowable as business expenditure under section 37(1) of the Act and only 50 per cent deduction under section 80-G was allowable?

(2) Whether under the facts and circumstances of the assessee's case the Hon'ble Tribunal was justified in holding that the donations given to the several institutions were not given with a view to get either business benefit or for any business purpose and whether it was necessary for the assessee to prove a direct and tangible business benefit arising out of the said donation given by it?

(3) Whether under the facts and circumstances of the assessee's case the Hon'ble Tribunal was right in disallowing the claim of the assessee being 100 per cent allowance under section 37(1) of the Act with respect to the donation made to the following institutions with a view to secure higher goodwill in a small place like Pali and the direct or indirect benefit which definitely arose out of the said donations: ---

In Reference No.35 of 1985, the following question has been referred by this Income Tax Appellate Tribunal arising out of its order, dated December 14, 1984, in respect of the assessment year 1982-83 under section 256(1) of the Income Tax Act, 1961:

"Whether the assessee was entitled to the whole amount of Rs.30,000 as a business expenditure?"

The facts, in brief, of the case of M/s. Jaswant Trading Company are that the assessee made donations to various parties as have been referred to in question No.3 above. The assessee claimed that the amount has been paid for business consideration and therefore under section 37(1) of the Act, the entire amount is allowable. It is submitted that the payment has been made by the assessee as he was a prominent businessman and by making such payments the turnover of the assessee has been increased. The Income Tax Appellate Tribunal found that so far as the payment to drought and flood relief finds are concerned, the decision of the Tribunal relied upon by the assessee is not applicable as in that case there was a scheme/provision for relief of the affected persons due to flood whereas in the present case no such facts have been brought on record by the assessee. In these circumstances, it was held that the assessee is entitled to deduction of 50 per cent. as provided under section 80-G of the Act.

The submission of learned counsel for the assessee is that by making the donations to the Rotary Club, Pali, Sewa Mandal, Chima Bai Lalchand and the Rajasthan Chief Minister's Drought and Flood Relief Funds are concerned, the assessee has increased his business.

We have considered the matter. The Tribunal has found that in the case relied upon by the assessee the donation was made to the Chief Minister's Drought and Flood Relief Fund as there was a scheme/provision of relief to the affected employees of the assessee due to flood. By observing this the Tribunal said that there was a direct link between the donation and the benefit derived and the nexus was established with the business. In the present case, it was found that there is total lack of such business connection or benefit with the donation made. There was no nexus between the donation and the business, therefore, it was considered not as a business expenditure. The provisions of sections 37 provide that any expenditure (not being expenditure of the nature 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". This section has contemplated that it does not apply in respect of expenditure of the nature described in sections 30 to 36. The requirement of this section is that the expenditure should be laid out or expended wholly and exclusively for the purposes of the business or profession and the burden to prove that the expenditure incurred by the assessee was wholly and exclusively for the purpose of business or profession is on the assessee. The assessee had failed to prove that the expenditure incurred by it was exclusively for the purpose of business.

Besides the above, the provisions of section 37 are general in nature and the provisions of section 80-G are specific. Applying the maxim generalia specialibus non derogant if an amount is liable for deduction under section 80-G it cannot be claimed under the general provisions of section 37(1). Section 80-G provides that in computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, an amount equal to fifty per cent of the aggregate of the sums specified in subsection (2). If a particular amount of expenditure falls within the category of donation, then the deduction as provided under section 80-G alone is applicable. A For the purpose of claiming the benefit under section 37(1), it has to be proved that the expenditure was wholly and exclusively for the purpose of business. The words "wholly and exclusively" eliminate other considerations and there should not be any dispute with regard to the expenditure that the object of it was for the necessity of business. There may be a circumstance where an expenditure falls within the category of "wholly and exclusively for the purposes of the business or profession" and also under section 80-G. In that case, the option remains with the assessee to claim the expenditure under either of the aforesaid sectt6ns. But where there is no direct nexus to prove that it is wholly and exclusively for the purpose of business or profession, then it cannot be claimed under section 37(1) of the Act. The phrase "for the purposes of the business" restricts the expenditure for such purpose and not otherwise. A future hope for advantage is in the nature of an expectation. The requirement of the section is that there must be a business in existence and the expenditure is wholly and exclusively for the purposes of business. A donation may be having indirect connection with the business as some future advantage might be expected while giving donation to the Chief Minister's Drought and Flood Relief Funds or it may be for the purpose of ego satisfaction. Besides the Chief Minister's Drought and Flood Relief Funds, both the assesses have given donation to the Rotary Club, Pali and Chima Bai Lalchand Trust. It has nowhere come on record as to in what manner the business of the assessee has been directly affected and there was a direct connection between the expenditure and the business of the assessee.

In these circumstances, .we are of the view that the Tribunal was justified in holding that there was no nexus established in this case between the donation on the one hand and the business perspective of the firm on the other and, therefore, the same was not allowable as business expenditure under section 37(1) of the Income Tax Act and only 50 per cent deduction under section 80-G was allowable.

Consequently, the reference is answered in favour of the Revenue and against the assessee No order-as to costs.

M.B.A./1053/FReference answered.