Holding

A contribution made to a public welfare fund that is directly connected with the assessee’s business and secures a licence is an allowable deduction under Section 37(1) and is not opposed to public policy.

Summary

The appellant, a rice exporter, was required to contribute to a State Welfare Fund in order to obtain export permits. It claimed the contribution as a business expense deductible under Section 37(1) of the Income‑Tax Act, 1961. The Income‑Tax Officer and the Appellate Assistant Commissioner disallowed the deduction; the Income‑Tax Tribunal allowed it, but the Andhra Pradesh High Court reversed, holding that the payment was opposed to public policy. The Supreme Court held that the contribution, being made for the purpose of obtaining a licence and directly connected with the appellant’s business, is a wholly and exclusively incurred business expense and is not opposed to public policy. Consequently, the deduction under Section 37(1) is allowable. The appeal was allowed and the appellant was awarded costs.

Issues considered

The contribution to the State Welfare Fund, compulsory for obtaining export permits, is a deductible business expense under Section 37(1) of the Income‑Tax Act, 1961.
The contribution is opposed to public policy and therefore non‑deductible.

Legislation cited

Income Tax Act, 1922s. 10(1), s. 24
Income Tax Act, 1961s. 256(1), s. 37(1), s. 80G

Subjects

Income TaxSection 37 deductionpublic welfare fundexport permitpublic policybusiness expensecommercial expediencytax deduction

Judgment

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 ITR 794,
H referred to.
VENKATASATYANARAYANARICEMILLCONTRACIDRSCO. i: GlT. [KIRPAi.J.] 769

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5623-24 A
__,. of 1983 etc.

From the Judgment and Order dated 23.12.83, of the Andhra
Pradesh High Court in Case Referred No. 85 of 1979.

A. Subba Rao for the Appellant. B
Dr. R.R. Mishra and B.S. Ahuja for the Respondent.

The Judgment of the Court was delivered by

KIRPAL, J. In respect of the assessment years 1971-72 and 1972-73 C
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').

The case of the appellant was that it was carrying on the business of D
exporting rice from the State of Andhra Pradesh. This rice could not be
exported without the appellant's obtaining a permit from the District
Collector. The permits were given only if payment was made to a welfare
fund which had seen established. The Income-Tax Officer, however, disal-
lowed the deduction by holding that the said payment was neither man- E
datory, nor statutory but only discretionary. He further observed that the
welfare fund had not been approved by the Commissioner of Income- tax
under Section 80-G of the Act and, therefore, contribution to it could not
be deducted.

The appeals filed by the appellant before the Appellate Assistant F
Commissioner met with no success. Thereupon, second appeals were filed
before the Income-tax Tribunal. The appeals were heard by a Full Bench
of the Tribunal which, while allowing the appeals, came to the conclusion
that though there was no compulsion on the appellant to make a contribu-
tion to a welfare fund still the contributions made in pursuance of a scheme G
J which was evolved by the Rice Millers Association in consultation with the
District Collector would show that an advantage would ensue on the
payment of the contribution and, therefore, the deduction was allowable
under Section 37(1) of the Act. The Tribunal further held that such
contributions could not be held to be opposed to public policy. Against the
order of the Tribunal disposing of the appeals the department filed four H

,•
t
770 SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A 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-taic Appellate Tribunal was justified to hold that the con- .
tribution made to the welfare fund was not opposed to public
B policy and that the same was motivated purely by commercial
consideration, and that the deduction was allowable under Section
37(1)?"

At the instance of the assessee the following question of law was referred:

c "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 contribution to the District
Welfare Fund for getting permits from the Government of Andhra
Pradesh for export of rice, did not constitute business expenditure
D within the meaning of Section 37 of the Income-taic Act, 1961?"

The High Court answered the questions of law in favour of the
respondent. It referred to the establishment of the welfare fund and the
payment of money which used to be made and came to the conclusion that
the contribution to the welfare fund was a pre condition for the grant of
E export permits and, therefore, the appellant was right in contending that
the contribution was a compulsory payment extracted from it as a price for
granting export permits. High Court, however, disallowed the deduction by
coming to the conclusion that the payment of this amount was opposed to
public policy. .,
,_

F It is contended by Sh. A. Subba Rao, learned counsel for the appel-
lant that on the facts as found by the Tribunal the appellant was entitled
to deduction under Section 37(1) of the Act. He further submitted that the
High Court erred in coming to the conclusion that the contribution which
was made by the millers like the appellant to the welfare fund could be
G equated with the giving of a bribe and, therefore, opposed to public policy,
as was sought to be suggested by the High Court while holding that the
said contribution was contrary to public policy.

The district welfare fund had been established pursuant to a scheme
which had been evolved by the rice millers association with the District
H Collector. According to this each member. of the association was to deposit
VENKATASATYANARAYANARICEMILLCON1RACIORSCO.v.ClT.(KIRPAI.,J.] 771
an amount of fifty paise per quintal of rice if he proposed to export the A
some from Andhra Pradesh. This deposit was to be made in the Andhra
. ..._,.. Bank. The application for the export permit was .required to be made in a
form where in the applicant had to state the amount of contribution
deposited by him, giving the particulars of the bank, the challan number
and the date. The High Court referred to the letter written to the Appellate
Assistant Collector by the Collector in which it was stated as follows :
B

With reference to the representation of the Secretary the west
Godvari District Rice Millers Association, Tadepallingudem, I am
to inform you that Welfare Fund at Rs. 0.50 paise per quintal is
being collected in respect of all rice and broken rice permits issued c
on trade to trade accounts.

A similar letter had also been written to the Income-tax Officer at the time
of assessment. From the aforesaid facts the High Court came to the
conclusion that the contribution was a compulsory one and was being
D
collected from all the exporters of rice from the state of Andhra but the
contribution so made, which was linked with the obtaining of permits, was
opposed to public policy and, on this ground, could not be allowed as a·
deduction under Section 37(1) of the Act.

The principles for determining whether such a payment can be E
regarded as being allowable as business expense are, in our opinion, well
settled. As long ago as in the case of Atherton v. British Insulated & Helsby
Cables Ltd., 10 TC 155 191 (HL) it was observed that "A sum of money
expended, not of necessity and with a view to a direct and immediate
benefit to the trade, but voluntarily and on the grounds of commercial F
expediency and in order indirectly to facilitate the carrying on of the
business, may yet be expended wholly and exclusively for the purposes of
trade." The aforesaid observation was quoted with approval by this Court
.. in Eastern Investments Ltd. v. Commissioner of Income Tax, West Benga4
(1951] SCR 594. Again in the case of The Commissioner of Income-tax,
Bombay v. Chandula/ Keshavlal and Co. Pet/ad, (1960] 3 SCR 38, a similar G

... question arose for consideration. The assessee who was managing agent
was entitled to commission. It, however, relinquished part of the commis-
sion which was receivable from the managing company, inter alia, for the
reason that the financial condition of the managing company was unsatis-
factory. The question arose whether the amount relinquished was deduc- H
772 SUPREME COURT REPORTS (1996] SUPP. 73.C.R.
A table as an expenditure or not. While upholding the claim for reduction
this Court observed at page 50 th.at "Thus in cases like the present one in
orqer to justify deduction the sum must oy given up for reasons of com-
mercial expediency; it may be voluntary, but so long as it is incurred for
the assessee's benefit the deduction would be claimbable." What, therefore,
B is to be seen is not whether it was compulsory for the assessee to make the
payment or not but the correct test is that of commercial expediency. As
long as the payment which is made is for the purposes of the business, and
the payment made is not by way of pt<nalty for infraction of any law, the
same would be allowable as a deduction.

C This Court in the case of Commissioner of Income-tax, Gujarat v. S.C.
Kothari, (1971) 82 ITR 794, was considering a case where the assessee had
suffered loss in an illegal transaction and the question arose whether the
same could be set off under Section 24 of the Income-tax Act, 1922 against
the profits and gains of speculative transaction. While allowing the set off
D it was observed that if a business is illegal, neither the profits earned nor
the losses incurred would be enforceable in law but that does not take the
profits out of the taxing statute. Similarly the taint of illegality of the
business cannot detract from the losses being taken into account for
computation of the amounts which can be subjected to tax under Section
10(1) of the 1922 Act. The tax collector, it was observed, cannot be heard
E to say that he will bring the gross receipts fo tax without deducting losses
and the legitimate expenses of the business.

Again in the case of Commissioner of Income-tax v. Piara Singh,
(1980) 124 ITR 40, a question arose with regard to the loss sustained by
F an assessee in the carrying on of an illegal business. 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 notes
were recovered from him. This money was being taken to Pakistan for the
purposes of purchasing gold which was to be smuggled into India. This
amount was confiscated. Thereupon the income-tax authorities came to the
G conclusion that the assessee, who was carrying on the business of smug-
gling, was liable to income tax and he was accordingly assessed to tax. The
assessee claimed deduction under Section 10 of the 1922 Act of the loss of
Rs. 65,000/- which had been confiscated by the customs authorities. While
allowing this deduction it was held that the carriage of the currency notes
H across the border was an essential part of the smuggling operation and
VENKATASATYANARAYANA RICEMILLCONTRACIDRSCO. v. C.l.T. [KIRPAI.,J.] 773

detection by the customs authorities and consequent confiscation was a A
·-..~ necessary incident of the said business and constituted a normal feature of
such an operation. The confiscation of the currency notes was a loss which
sprang directly from the carrying on of the business and was allowable as
a deduction under Section 10 of the 1922 Act.

Even though this Court has in the cases of Piara Singh and S.C.
B
Kothari (supra) held that loss suffered while carrying on illegal business is
allowable as a deduction, in the present case we find that the contribution
which was made by the appellant could under no circumstances be
regarded as illegal payments on payments which were opposed to public
policy. This is not a case where the assessee was paying any bride to any C
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. 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 D
being used for public benefit cannot be regarded as being opposed to
public policy. 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.

A case similar to the present one came up for consideration before E
the Madhya Pradesh High Court in the case of Additional Commissioner
of Income-tax v. Kuber Singh Bhagwandas, (1979) 118 ITR 379. In this case
the Government of Madhya Pradesh had under the Essential Commodities
Act, 1955 passed an order which, inter alia, prohibited any person from
exporting gram from Madhya Pradesh except under and in accordance with F
the permit issued by the State Government. The Madhya Pradesh Anaj
Vyapari Maha Sangh, the association of foodgrain merchants of the State,
addressed a representation to the Food Minister to the effect that the stock
of gulabi chana and other pulses was steadily deteriorating in quality
because of want of market. The Chief Minister of Madhya Pradesh there- G
upon informed the President of the Maha Sangh that the Government had
decided to allow liberally permits for the export of gulabi chana and pulses
outside the State. In the same letter the Chief Minister brought to the
notice of the trading community that the kisans and labourers were under-
going untold hardship on account of drought conditions resulting from the
failure of the monsoon and, as the merchants were bound to earn rich H
774 SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.

A profits, he appealed to the trading community that they should contribute
a portion'of such profits to the Chief Minister's Drought Relief Fund. This '"'- ....
was followed by a letter written by the Joint Secretary to the Maha Sangh
asking the merchants to deposit Rs. 30 per quintal for the export of gulabi
chana and Rs. 5 per quital for the export of pulses into the State Bank of
India or the State Bank of Indore to the credit of the Chief Minister's
B Drought Relief Fund and to obtain duplicate receipt from the bank. It was
further directed that the originals of such receipts were to be sent along
with the duly filled in application forms for permits to the Maha Sangh at
Bhopal. Members were also required to send fifty paise per quintal for
meeting the administrative expenses of the said Maha Sangh. On the
c application being received in accordance with the aforesaid documents the
Maha Sangh forwarded the same, including the application of the assessee,
to the relevant authorities of the Food Department whereupon permits for
export of gulabi chana or pulses, as mentioned in the application, were
issued to the merchants. In his income tax return the assessee claimed a
deduction on the contribution so made to the Chief Minister's Drought
D
Relief Fund. The contention of the assessee was that permit for exporting
gulabi chana could not be obtained without the making of such a contribu·
tion and, therefore, making of the said donation should be allowed as a .~

deduction under Section 37(1) of the Act. The Income-tax Tribunal upheld
the contention and at the instance of the Revenue reference was made to
E the High Court under Section 256(1) of the Act. An earlier reference, on
the same issue, had been decided by a Division Bench of the Madhya
Pradesh High Court in the case of Additional Commissioner of Income-tax
v. Baarinarayan Shrinarayan Akodiya, (1975) 101 ITR 817 (MP). As the
correctness of the same was challenged, the Division Bench referred Kuber
F Singh's case to a Full Bench. While holding that the decision in Akodiya's
case was not correctly decided the Full Bench held that any normal trader
would have realised that there was greater prospect of getting a permit for
carrying on the export business in case he made a donation as requested >-·

by the Chief Minister. The merchants had made the donations as a matter
of commercial expediency to facilitate the obtaining of permits which were
G necessary for carrying on the export trade. The nature of the expenditure
......._
was such that benefit to a third party or charity had resulted but that did
not disqualify it from being an expenditure incurred wholly and exclusively
for purposes of business. The Full Bench distinguished this Court's
decision in Haji Aziz and Abdul Shakoor Bros. v. CIT, (1961) 41 ITR 350,
H by observing that in the case before it the donations which were made by
VENKATASATYANARAYANARICEMILLCONIRACIORS CO. v. C.LT. (KIRPAI.., J.] 775

the traders did not contravene any law and nor were the donations made A
:=::» .. as penalty for infraction of any law. It, therefore, concluded that the
Tribunal was right in holding that there was a direct nexus between the
assessee's business and the donations made to the Chief Minister's Drought
Relief Fund and that the donations were allowable under Section 37(1) of
the Act and as expenditure incurred wholly and exclusively for purposes
B
of the assc;;ss.ee's business.

In our opinion the decision in Kuber Singh's case correctly spells out
the principle relating to the allowability of such an expense which has been
incurred wit)l a view to the promotion of an assessee's business.
c
Same principle as was followed in Kuber Singh's case has been
applied, in somewhat different circumstances, by other High Courts and
the same has been approved by this Court. In Commissioner of Income-tax,
Orissa v. Middle East Constrnction Equipments, (1979) 117 ITR 382, the
Orissa High Court had to deal with a case where the assessee carried on D
the business of supplying machines to Government Departments. The State
Government decided to give preferential treatment in the matter of placing
of orders for supply of materials to parties holding State Government Loan
Bonds. The assessee borrowed money for purchase of Government Loan
Bonds and claimed deduction of interest paid on such borrowed money.
The Tribunal found that the bonds had been purchased in order to boost E
the sales of the assessee and that the Bonds, which were sold within a year,
had not been held as investment and had allowed the claim of the assessee.
On reference being made at the instance of the Revenue the Orissa High
Court allowed the said deduction by observing that the loan had been taken
for purchasing bonds for the purpose of boosting up of the assessee's F
business and, therefore, the payment of interest was rightly allowable as a
reduction. A similar question once again arose before the Orissa High
Court in the case of Commissioner of Income-tax v. Industry and Commerce
Enterprisers (P) Ltd. The assessee which had purchased Government Loan
Bonds had sold the same and had incurred a loss. This loss was claimed
G
...
.:.
as a deduction. The Tribunal held that the assessee had acquired business
from the Government by the purchase of the securities and, although the
relevant correspondence did not speak of any condition precedent to the
grant of the business to the assessee, yet because of the coincidence of the
date of purchase of the bonds and the business allotted to the assessee
which Was of an equal sum, there was a direct nexus between the business H
776 SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.

A acquired by the assessee and the purchase of the securities. The Tribunal
accordingly allowed the said deduction. On a reference being made the
High Court upheld the decision of the Tribunal which had allowed the said
deduction. Before the Madras High Court also a similar question arose
where an assessee, carrying on road transport business, subscribed to
Government Bonds carrying 4.5 per cent interest. These Bonds were
B
purchased at the instance of the Road Transport Authorities and for this
purpose the assessee had borrowed money at the rate of 10 per cent. This
was done, according to the assessee, with a view to keep the road transport
authority in good humour under the bonajide belief that it was necessary
to do so in order to carry on its business. Subsequently, the assessee sold
c the bonds at a loss of Rs. 3127 and claimed this amount as a business loss.
This claim was allowed by the Tribunal who found that the motor vehicle
inspector had. handed over the necessary forms to the assessee for pur-
chasing Government Bonds, that the assessee was under an obligation to
purchase the Bonds for the smooth running of the transport business
D especially when the mandate for purchase of the Bonds came from the
inspector and, therefore, the loss was allowable as deduction. While
upholding the decision of the Tribunal the Madras High Court observed
"subscribing to Government Loans as in the present case, is not, in our of
opinion, opposed to public policy, and we are of the opinion that the
Tribunal has rightly found that the assessee was obliged to sell the Bonds
E before they became ripe for payment only to stop incurring further loss as
the money with which th.e subscription for the Government Bonds had
been made li,ad been borrowed by the assessee from a bank at 10 per cent
interest while the Bonds carried interest only at 4.5 per cent." A similar
question again arose for consideration before the Madras High Court in
F Commissioner of Income-tax v. Dhandayuthapani Foudary (Private) Ltd.,
(1980) 123 ITR 709. In that case, as a result of the pursuation of the Sales
Tax Authorities who were making assessments on the assessee and who
also had the control over Form No. XX which are delivery notes to be
issued by them for the dispatch of goods, the assessee was obliged to
G subscribe to certain government securities. However, instead of directly
purchasing these securities and then selling them, the assessee paid certain
margin money ta the brokers which represented the difference between
the issue price and the market price for the securities. The assessee
claimed a loss of Rs. 1900. This claim was upheld by the Appellate
Assistant Commissioner and the Tribunal. The High Court following its
H decision in the case of B.M.S. (P) Ltd. (supra) upheld the decision of the
VENKATASATYANARAYANA FJCEMILLCONTRACIORSCO. v. C.I.T. [KIRPAL,J.] 777
Tribunal to the effect that these securities were purchased and sold in A
~- ~,., order to retain the goodwill of the Sales- tax Authorities which was
necessary and essential for the smooth carrying on of the business by the
assessee.

The aforesaid decisions of the Orissa High Court in Industry and
Commerce Enterprisers (P) Ltd. and of the Madras High Court in B.M.S.
B
(P) Ltd. and Dhandayuthapani Found1y cases (supra) were cited with
approval by this Court in Mis Patnaik and Co. Ltd. v. Commissioner of
Income Tax, Orissa, [1986] .4 SCC 16. In tha,t case the assessee was told
that if he subscribed for the Government loan preferential treatment would
be granted to it in the placing of orders for motor vehicles required by the c
various government departments and the assessee would further benefit by
an advance from the government upto fifty per cent of the value of the
orders placed. The Tribunal found that the investment in the purchase of
Government Bonds was made in order to boost its business and as the
investment had been made by way of commercial expediency for the D
purpose of carrying on its business, the loss suffered by the assessee on the
sale of the bonds must be regarded as a Revenue loss. The High Court,
however, decided the question in favour of the Revenue. While reversing
the judgment of the High C?urt, and upholding the conclusions arrived at
by the Tribuna~ this Court held that the investments made by the assessee
were not a capital asset and the Joss suffered by it was allowable as a E
reduction. It then observed as follows :

"..... It was held by the Orissa High Court in CIT v. Industry and
Commerce Enterprisers (P) Ltd., and by the Madras High Court in
Addi. C!Tv.B.M.S. (P) Ltd. and againinCITv.Dhandayuthapanu p
Foundary (P) Ltd., that where government bonds on securities
were purchased by the assessee with a view to increasing his
business with the government or with the object of retaining the
goodwill of the authorities for the purpose of his business, the loss
incurred on the sale of such bonds or securities was allowable as
a business loss. G

From the aforesaid discussion it follows that any contribution made
by an assessee to a public welfare 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 business has to be regarded as an allowable H
778 SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A deduction under Section 37(1) of the Act. Such a donation, whether
voluntary or at the instance of the authorities concerned, when made to a
Chief Minister's Drought Relief Fund or a District Welfare Fund estab-
lished by the District Collector or any other Fund for the benefit of the
public and with a view to secure benefit to the assessee's business, cannot
B be regarded as payment opposed to public policy. It is not as if the payment
in the present case had been made as an illegal gratification. There is no
law which prohibits the making of such a donation. The mere fact that
making of a donation for charitable or public cause or in public interest
results in the government giving patronage or benefit can be no ground to
deny the assessee a deduction of that amount under Section 37(1) of the
C Act when such payment had been made for the purpose of assessee's
business.

.
For the aforesaid reasons we hold'that the conclusion of the High
Court arrived at in the present cases was not correct. The questions of law
referred to by the Tribunal are accordingly answered in favour of t4~
D appellants who will also be entitled to costs.

K.K.T. Appeal allowed.