Commissioner of Income Tax vs Madras Refineries Ltd.

R. JAYASIMHA BABU J.

The assessment year is 1992-93. The assessee, Madras Refineries Limited, is a public limited company. As a good corporate citizen and as a

measure of gaining goodwill of the people living in and around its industry which is to some extent a polluting industry, it provided funds for

establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the benefit of the

children of those local residents. It incurred an expenditure of Rs. 15,32,000 for that purpose.

The Assessing Officer declined to allow that expenditure on the ground that it was not an item of expenditure incurred by the assessee for

earning the income earned by it in that year.

On appeal, the Commissioner held that the assessee may have been obliged to incur that expenditure for the good of and in the interest of the

community in and around its place of business, and that activity was one which was capable of being regarded as an activity for the promotion of

its business. He, however, without assigning any reason held that only a sum of Rs. 5 lakhs out of the sum claimed, was to be allowed as a

deduction.

On further appeal to the Tribunal, the Tribunal, after examining the records placed before it and having been satisfied that the money had in fact

been spent in the manner claimed by the assessee, held that winning the goodwill of the people of the locality, helps in boosting the business in

many ways. It allowed the entire amount claimed as a deduction.

The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern

for the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings

goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business

can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the

school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business

concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry.

The question of law raised in the appeal, as to whether the Tribunal was right in allowing the deduction of the entire expenditure of Rs.

15,32,000 as business expenditure, is answered in favour of the assessee, and against the Revenue.