M/S SRI VENKATA SATYA NARAYANA RICE MILL CONTRACTORS CO. versus THE COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH- II

Citation: [1996] SUPP. 7 S.C.R. 767 · Decided: 25-10-1996 · Supreme Court of India · Bench: J.S. VERMA · Disposal: Appeal(s) allowed

Judgment (excerpt)

MIS SRI VENKATA SATYA NARAYANA RICE MILL 
A 
CONTRACTORS CO. 
v. 
THE COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH- II 
OCTOBER 25, 1996 
B 
(J.S. VERMA AND B.N. KRIPAL, JJ.) 
I11come Tax Act, 1961-Sectioll 37(1)-I11come Tax Deductio11 u11der 
busilless-Claim of-Amou11t paid to State Welfare Fund, which was com-
pulsory to get export pemzit-High Court concluded that the payment is op-
C 
posed to public policy, hence deduction not allowed-Held, the payme11t, is 
allowable deductio11, since it is directly connected with carrying 011 of 
assessee's business or results in the benefit of assessee's business-And not 
opposed to public policy, since the Fund is for the use of public. 
Appellant was carrying on business of exporting rice, from the State D 
of Andhra Pradesh, for which he required permit from District Collector. 
The permit could be obtained only on compulsory contribution to State 
Welfare Fund, which was established pursuant to a Scheme, evolved by the 
Rice Millers Association in consultation with the District Collector. The 
appellant claimed deduction of the amount paid to the Welfare Fund, as E 
a business expenditure u/s 37(1) of Income Tax Act. 
Income Tax Officer did not allow the deduction. The appeal of the 
appellant to Appellate Assistant Commissioner was also dismissed. In 
Second appeal before Income Tax Tribunal, it was held that the deduction 
was allowable and that the contribution to Welfare Fund could not be held F 
to be opposed to public policy. 
The High Court, in reference u/s 256(1) of Income Tax Act by the 
respondent concluded that the contribution was compulsory and was being 
collected from all the rice exporters in Andhra Pradesh, but the same was G 
opposed to public policy, therefore deduction was not allowed. Hence this 
appeal. 
Allowing the appeal, this Court 
HELD : 1.1. Any contribution made by an assessee to a public welfare H 
767 
768 
SUPREME COURT REPORTS (1996) SUPP. 7 S.C.R. 
A fund which is directly connected or related with the carrying on of the 
assessee's business or which results in the benefit to the assessee's busi· 
ness has to be regarded as an allowable deduction under Section 37(1) of 
the Income Tax Act. The mere fact that making of a donation for charitable 
of public cause or in public interest results in the government giving 
B patronage or benefit can be no ground to deny the assessee a deduction of 
that amount under Section 37(1) of the Act when such payment had been 
made for the purpose of assessee's business. [777-H, 778-B] 
Atherton v. British Insulated & Helsby Cables Ltd., 10 TC 155, 191 
(HL); Eastern Investments Ltd. v. Commissioner of Income Tax, West Ben-
C gal, [1995] SCR 594; The Commissioner of Income Tax, Bombay v. Chan-
dulal Keshavlal and Co., Petlad, [1960) 3 SCR 30; Additional Commissioner 
of Income Tax v. Kuber Singh Bhagwandas, (1979) 118 ITR 379; Additional 
Commissioner of Income Tax v. Baarinarayan Shrinarayan Akodiya, (1975) 
101 ITR 817 (M.P.); Haji Aziz and Abdul Shakoor Bros. v. C.J. T. (1961) 41 
ITR 350; Commissioner of Income Tax, Orissa v. Middle East Constrnction 
D Equipments, (1979) 117 ITR 382; Commissioner of Income Tax v. Dhan-
dayuthapani Foundry (Private) Ltd., (1980) 123 ITR 709 and Mis Patnaik & 
Co. Ltd. v. Commissioner of Income Tax, Orissa, [1966) 4 SCC 16, referred 
to. 
E 
1.2. In the present case, the donation for the benefit of the public and 
with view to secure benefit to the assessee's business cannot be regarded as 
payment opposed to public policy. This is not a case where the assessee was 
paying any bribe to any person nor is this a case where money was being 
contributed to any private fund or for the benefit of any individual which 
could be regarded as a form of illegal gratification. There is no law which 
F prohibits the making of such donations. By a voluntary scheme, with which 
the District Collector was associated, the district welfare fund had been 
established for the benefit of the general public. The payment to such a fund 
which was openly made by all the millers and which fund was being used 
for public benefit cannot be regarded as being opposed to public policy. 
G Requiring payment to be made for a just cause which would entitle a 
businessman to obtain a licence or permit cannot be regarded as being 
against the public policy. [778-A, 773-C-D] 
Commissioner of Income Tax v. Piara Singh, (1980) 124 ITR 40 and 
Commissioner of Income Tax, Gujarai v. S.C. Kothari, (1971) 82 IT

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