Commissioner of Income Tax vs Saurashtra Cement and Chemicals Industries Ltd.

B.S. Kapadia, J.—The Tribunal has referred the following two questions to this Court for its opinion:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to relief u/s 80G of the income tax Act, 1961, in respect of Rs. 11,595 for the assessment year 1970-71 and Rs. 991 for the assessment year 1971-72 being'' the value of cement donated by the assessee to the Collector of Surat for flood relief and Arya Kanya Mahavidyalaya, respectively?

Whether, on the facts and in the circumstances of the case, and keeping in view Circular No. 203 dated 16-7-1976 issued by the CBDT the Tribunal was justified in law in holding 1 that a sum of Rs. 5,000 in each of the years should be disallowed out of advertisement expenses in respect of advertisements given in various souvenirs when there was no link between the assessee''s business and the souvenirs?

The first question is referred at the instance of the revenue while the second question is referred at the instance of the assessee.

The facts leading to the present references are as under.

The relevant assessment years are 1970-71 and 1971-72. The assessee is a limited company which manufactures cement. In the first year, the assessee give 99.44 metric tonnes of cement, one of its products, valued at Rs. 11,595 to the Collector of Surat for flood relief in Surat District. Similarly, in the second year the assessee donated cement valued at Rs. 991 to Arya Kanya Mahavidyalaya, Baroda. In both the assessment years, the ITO held that the assessee''s claim u/s 80G of the income tax Act, 1961 (''the Act'') for donation was not entertainable, as the donations should be in cash only. The assessee being aggrieved by the said order, carried the matter before the AAC, who allowed the assessee''s claim on this aspect relying on the decision in Commissioner of Income Tax, Mysore Vs. Banglore Woollen, Cotton and Silk Mills Co. Ltd., . Being aggrieved by the said order, the revenue preferred an appeal before the Tribunal. The Tribunal dismissed the revenue''s appeal on this point.

Similarly, the assessee claimed Rs. 19,185 as expenditure for advertisements in various souvenirs. The ITO, however, found that Rs. 19,185 were in the nature of donation given to various institutions and he disallowed the same, but allowed rebate u/s 80G on the amount of Rs. 15,884. The AAC noted that the advertisements were in the souvenirs of social, cultural and charitable institutions and related to the donations to these institutions and he, therefore, confirmed the ITO''s order on this point.

Similarly, in the second year the ITO disallowed Rs. 13,026, but granted rebate u/s 80G of Rs. 4,630. In appeal, the AAC disallowed the amount of Rs. 3,256 as being 1/4th of Rs. 13,026 and allowed the amount of Rs. 9,770. The assessee did not prefer any appeal against the same, but the revenue preferred an appeal against the allowance of Rs. 9,770.

It was urged before the Tribunal on behalf of the assessee that the CBDT has issued Circular No. 203 dated 16-7-1976 [see Taxmann''s Direct Taxes Circulars, Vol. 1, 1985 edn., p. 285] and that should be applied in the present case. However, the Tribunal disallowed Rs. 5,000 in each of the two years after finding that in respect of the same item there was no link between the assessee''s business and souvenirs in which the advertisements were given and that they were in the nature of donations. On estimates the Tribunal disallowed Rs. 5,000 as being the amount for non-business purposes and it allowed the balance amount of the claims of the assessee.

On account of the aforesaid orders of the Tribunal, both the assessee as well as the revenue made applications for reference and the reference of the aforesaid two questions have been made u/s 256(1) of the Act.

Mr. S.N. Shelat, the learned counsel, appearing for the revenue submits that the assessee has donated the cement and, therefore, the assessee is not entitled to get relief u/s 80G inasmuch as the assessee has donated in kind and not in cash.

Mr. K.C. Patel, the learned counsel appearing for the assessee submits that the cement was one of the products of the assessee- company and it was stock-in-trade and in substance the sum is donated.

In support of rival contentions certain decisions were cited before us. According to Mr. K.C. Patel, the decision in Saurashtra Cement and Chemical Industries Ltd. Vs. Commissioner of Income Tax, Gujarat-V, is in respect of cement and donated by the assessee for the preceding year and in the said case it was held that since the substance of the transaction was to make a donation in cash, the valuation of the cement bags amounting to Rs. 1,051 was entitled to the relief u/s 80G.

Mr. Shelat has relied on the subsequent judgment of this Court in Commissioner of Income Tax, Gujarat Vs. Dhirajben R. Amin, . In the said case it was held that where the shares were donated to two charitable trusts and there was no finding that the donations in substance were donations of cash and, therefore, it was held that the donations were not entitled to deduction u/s 80G of the Act.

On perusal of the ITO''s order it is clear that the claim is disallowed u/s 80G for donation given in kind to the Collector, Surat, for flood affected area of Surat District. When the matter was argued before the AAC it was pointed out that similar point was in dispute for the assessment year 1969-70 and in appeal for the assessment year 1969-70 the assessee''s claim was allowed u/s 80G. That was the subject-matter of the reference and the said judgment in Saurashtra Cement & Chemical Industries Ltd.''s case (supra). Accordingly, in the present case the AAC directed the ITO to allow the deduction u/s 80G. Similarly, for the earlier years 1970-71 the AAC allowed the claim of deduction u/s 80G as mentioned in para 11 of his order. While the Tribunal dealing with the point for both the years in para 22 and para 26 of its order held that only because the assessee donated its product to the Collector for famine relief fund and did not donate in cash, it is not disqualified from the benefit of relief u/s 80G. With this observation the Tribunal held that it does not see any reason to interfere with the order of the learned AAC.

We have carefully perused the reasonings to find out as to whether there is any clear and definite finding that in substance the transaction of donation was in cash and not in kind. The Tribunal has simply con firmed the finding of the AAC and the AAC has simply followed the order of the assessment year 1969-70. Similar point was in dispute in respect of the assessment year 1969-70 which ultimately resulted in the judgment in Saurashtra Cement & Chemical Industries Ltd.''s case (supra) wherein it was found that the substance of the transaction was to make a donation in cash and, hence, the assessee was entitled to relief u/s 80G for the value of the cement bags amounting to Rs. 1,051. However, no such finding is given by any of the authorities below in the present case. In the absence of such finding, we do not desire to answer the first question referred to this Court. In that view of the matter, the matter will be required to be sent back to the Tribunal for recording the finding as to whether, the transaction was in substance one of cash and not of kind and to dispose of the same on the ratio of the judgment in Smt. Dhirajben R. Amin''s case (supra).

On the second question, it is submitted by Shri K.C. Patel, the learned counsel appearing for the assessee that though Circular No. 203 dated 16-7-1976 which was cited and which has been referred to by the Tribunal in its order, has not been considered. On perusal of the order of the Tribunal it appears that in para 8 thereof the reference of the CBDT''s Circular No. 203 dated 16-7-1976 has been made, but nowhere in the order it has been dealt with by the Tribunal.

While dealing with the point with regard to the expenditure incurred on souvenir advertisements the Tribunal has observed in para 11 of its order as under:

On reference to bills, we do find some items which are in nature of donations and there is no link apparent between the assessee''s business and the souvenirs where the advertisement is given... In the circumstances, we hold that disallowance of Rs. 5,000 is for non-business purposes would be fair and reasonable in the circumstances of the case. Consequently, the assessee would not be entitled to rebate u/s 80G.

When the question is with regard to the expenditure incurred for advertisements either in the newspapers or in the souvenirs, we find it difficult to accept the reasoning of the Tribunal to the effect that there is no link apparent between the assessee''s business and the souvenirs where the advertisement is given. Normally, when any assessee gives any advertisement in the newspaper, he has no link with the newspaper. Similarly, when the advertisement is given in the souvenir, then there need not be any link between the assessee''s business and souvenir. We, therefore, think that this approach of the Tribunal was an erroneous one.

From the reasonings quoted from para 11 of the order of the Tribunal it appears that the Tribunal has disallowed the sum of Rs. 5,000 for non- business purposes and further also held that the assessee would not be entitled to rebate u/s 80G. It may be mentioned that for the assessment year 1970-71 the assessee has claimed amount of Rs. 19,185 and for the assessment year 1971-72 the assessee has claimed an amount of Rs. 13,026 as expenses incurred for advertisements in souvenirs. There is no definite finding as to out of the aforesaid claims, how much was the amount of donation and how much was the amount incurred for advertisements. If the entire amount is treated as the amount of donations, then the assessee''s claims for relief u/s 80G should be considered. If the whole amount of the above claim is treated as incurred for advertisements in souvenirs, that should be considered as the amount of expenditure incurred for business. Thus, there is no clear finding on the point as to whether the entire amount of the aforesaid claims was treated as donations to the respective institutions who brought out the souvenirs or that they were the amount of expenditure spent for advertisements for the business. In absence of any definite finding we would not be inclined to give finding on the issue and the Tribunal is, accordingly, directed to give definite finding on this point in the light of Circular No. 203 dated 16-7-1976 of the CBDT. Accordingly, we decline to answer both the questions. The references are disposed of with no order as to costs.