Commissioner of Income Tax vs Saraswati Industrial Syndicate Ltd. (No. 1)

Gokal Chand Mital, J.—The Income Tax Appellate Tribunal, Chandigarh, has referred the following questions for the opinion of this court:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the words "corrosive chemicals" employed in entry (ii)B(7) of Para III of Part I of Appendix I to the Income Tax Rule, contemplate not only free chemicals but also non-free chemicals of Corrosive effect ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to deduction in respect of Rs. 10,800 which presented the value of 50 bags of sugar donated to the Sub-Divisional Magistrate, Jagadhri, for the use of army personnel ?"

Question No. 1 has already been answered by this court in Commissioner of Income Tax Vs. Saraswati Industrial Syndicate Ltd., between the same parties for the earlier year in the negative, that is, in favour of the Revenue and against the assessee. Accordingly, we answer the first question in the same terms.

The second question arises out of the following facts. The assessee is manufacturing sugar. In the year relevant to the assessment year 1973-74, the assessee donated 50 bags of sugar worth Rs. 10,800 to the Sub-Divisional Magistrate, Jagadhri, for the use of army personnel during the Indo-Pak war of December, 1971. It claimed deduction in respect of the value of the sugar bags donated u/s 80G of the Income Tax Act (for short "the Act"). The Income Tax Officer disallowed the deduction on the reasoning that only cash donations could be deducted but not those made in kind. However, on appeal, the Appellate Assistant Commissioner allowed the deduction on the reasoning of the judgment in Commissioner of Income Tax, Bombay City I Vs. Associated Cement Co. Ltd., wherein it was held that the substance of the transaction had to be taken into consideration and the matter could not been seen in the extreme technical sense because what the assessee gave out of its coffer was equal to the value of the movable property donated The deduction was upheld by the Tribunal which, in addition, relied on a decision in Commissioner of Income Tax, Mysore Vs. Banglore Woollen, Cotton and Silk Mills Co. Ltd., .

After hearing learned counsel for the parties, we are of the view that the decision of the Tribunal is correct. The decision is further supported by the judgment in CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 876 where the Gujarat High Court allowed deduction of gift of shares on the reasoning that it was essentially cash. The Bombay High Court in Commissioner of Income Tax, Bombay City-V Vs. Traub (India) P. Ltd., and Commissioner of Income Tax, Bombay City-III Vs. Khandelwal Laboratories Private Ltd., and the Madras High Court in Addl. CIT v. Abhai Maligai [1978] 113 ITR 737 have allowed deduction of gift in kind on the same reasoning. In the case in hand, the donation was of an item which was being manufactured by the assessee and, therefore, it should be deemed that the assessee, in reality, gifted cash which was equal to the value of the commodity donated. During these days, sugar was also needed and if an assessee had given a cash gift, the sugar could have been purchased from that donation and, ultimately, the result would have been the same. Therefore, the provision of Section 80G is not to be strictly construed as is sought to be done on behalf of the Revenue.

Accordingly, we answer the second question in favour of the assessee and against the Revenue, that is in the affirmative. Since there is divided success, we make no order as to costs.