At the instance of the assessee the following question of law was referred Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the sum of Rs.9,164/ paid by the assessee towards companytribution to the District Welfare Fund for getting permits from the Government of Andhra Pradesh for export of rice, did number companystitute business expenditure within he meaning of Section 37 of the Income tax Act, 1961?
A similar letter had also been written to the Income tax Officer at the time of assessment.
Against the order of the Tribunal disposing of the appeals the department filed four applications under Section 256 1 of the Act whereupon the following question of law was referred Whether on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was justified to hold that the companytribution made to the welfare fund was number opposed to public policy and that the same was motivated purely by companymercial companysideration, and that the deduction was allowable under Section 37 1 ?
The case of the appellant was that it was carrying on the business of exporting rice from the State of Andhra Pradesh.
The district welfare fund had been established pursuant to a scheme which had been evolved by the rice millers association with the District Collector.
It referred to the establishment of the welfare fund and the payment of money which used to be made and came to the companyclusion that the companytribution to the welfare fund was a pre companydition for the grant of export permits and, therefore, the appellant was right in companytending that the companytribution was a companypulsory payment extracted from it as a price for granting export permits.
This deposit was to be made in the Andhra Bank.
The appeals filed by the appellant before the Appellate Assistant Commissioner met with numbersuccess.
The Income Tax Officer, however, disallowed the deduction by holding that the said payment was neither mandatory, number statutory but was only discretionary.
The respondent therein carried on smuggling activities and was apprehended by the Indian police while crossing the border into Pakistan and Rs.65,000/ in currency numberes were recovered from him.
This money was being taken to Pakistan for the purposes of purchasing gold which was to be smuggled into India.
The appeals were heard by a Full Bench of the Tribunal which, while allowing the appeals, came to the companyclusion that thought there was numbercompulsion on the appellant to make a companytribution to a welfare fund still the companytributions made in pursuance of a scheme which was evolved by the Rice Millers Association in companysultation with the District Collector would show that an advantage would ensue on the payment of the companytribution and, therefore, the deduction was allowable under Section 37 1 of the Act.
Thereupon, second appeals were filed before the Income tax Tribunal.
The application for the export permit was required too be made in a form wherein the applicant had to state the amount of companytribution deposited by him, giving the particulars of the bank, the challan number and the date.
The permits were given only if payment was made to a welfare fund which had been established.
This rice companyld number be exported without the appellants obtaining a permit from the District Collector.
The High Court referred to the Letter written to the Appellate Assistant Collector by the Collector in which it was stated as follows With reference to the representation of the Secretary the West Godavari District Rice Millers Association, Tadepallingudem, I am to inform you that Welfare Fund at Rs.0.50 paise per quintal is being companylected in respect of all rice and broken rice permits issued on trade to trade accounts.
W I T H CIVIL APPEAL NOS.
5625, 5626 27, 5628 29, 5630,56 31, 5633, 5635, 5636, 5637 and 5637A OF 1983 J U D G M E N T KIRPAL, J. In respect of the assessment years 1971 72 and 1972 73 the appellant filed its return of income and claimed deduction for the amounts paid by it to the Andhra Pradesh Welfare Fund, West Godavari Branch Eluru as a business expenditure under Section 37 1 of the Income tax Act, 1961 for short the Act .
