The Hindu Business Line : Corporate social conscience

This is with reference to "Corporate social conscience" (Business Line, August 5): We need to study Section 37(1) of the Income Tax Act 1961 to understand the concept better. Section 37(1) accommodates all deductible expenditure other than those specifically covered by other provisions. Also, it is impracticable to list out all the deductible expenditures.

One of the components of this section is "any expenditure laid out or expended wholly or exclusively for the purposes of the business or profession." This means that there should be a perfect nexus between the expenditure and the business if deduction is to be claimed.

It is important to also understand a concept called commercial expediency. This means that certain expenses are allowed as deductible even though there may not be any specific provision in law allowing the same. For example, mamool given in places such as dockyard, railway stations, etc., are allowed considering the practical functioning of the business. Strictly speaking, there is no provision in law that says that they should be allowed or disallowed.

Based on the same principle of commercial expediency, several expenses have been considered in favour of assesses. For instance, in CIT vs Heyward Waldia Refinery Ltd (1992) 209 ITR 159 (Cal.), the company presented watches to employees to encourage them to maintain timely attendance. It also enhanced the goodwill between the employer and the workers.

A. N. V. Ramani

Chennai

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