CASE TITLE:
PR. Commissioner of Income Tax v. M/S Steel Authority of India
DATE OF ORDER:
6 January 2023
JUDGE(S):
Justice Rajiv Shakdher
Justice Tata Vitasta Ganju
SUBJECT
The learned Delhi High Court held that the amendment brought to section 37(1) of the Income Tax Act vide the Finance Act, 2014 which added explanation 2 to the said section is to be applied prospectively. Explanation 2 to section 37(1) bars deduction of CSR expenses when arriving at the income from business or profession.
BRIEF FACTS OF THE CASE
- The Steel Authority of India which is the assessee in the present case sought to claim as deduction u/s 37(1) the expenses advanced by it towards Corporate Social Responsibility.
- Both the Assessing Officer and then the Commissioner of Income Tax ruled that any such amount expended towards CSR can not be claimed as deduction u/s 37(1).
- The assessee then preferred and appeal before the Income Tax Appellate Tribunal which ruled in its favour.
- It is against the order of ITAT that the appellant has preferred the present appeal before the learned High Court.
ARGUMENTS ADVANCED BY THE APPELLANT
- It is argued by the learned counsel for the appellant contended that the impugned order is flawed, as the expenditure incurred by the assessee towards CER is not amenable to deduction under Section 37(1) of the Income Tax Act, 1961.
LEGAL ISSUE
- Whether the assessee can be allowed to claim the deduction or not?
ANALYSIS BY THE COURT
- The Court observed that the question of allowing /disallowing a deduction u/s 37 does not depend on how the funds are spent by the recipient.
- The Court noted that the assessee provided funds in discharge of its obligation as required by law on the advise of the Department of Public Enterprises. In view of that, it can not be concluded that such obligation to which the assess is subjected to by law was not connected wholly or exclusively to its business.
- The Court furthur reiterated the conditions for allowing a deduction u/s 37 of IT Act. They are:-
- The expenditure is not a capital expenditure
- Such expenditure is expended wholly or exclusively for the purposes of profession or business.
- That such expenditure claimed does not fall u/s 30 to 36
- The Court observed that there is no dispute about the fact that the expenditure claimed in the present case does not fall u/s 30 to 36 of the Act. It furthur observed that it has been noted by the Tribunal, in the past, that CSR expenses has been allowed to be claimed as deduction u/s 37(1) of the IT Act.
- On the question of whether the amendment to section 37(1) which added to it the explanation barring deduction of CSR expenses when arriving at income from profession or business was retrospective or prospective, the Court adopted the latter view. It noted:
- “the Explanation appended to Section 37(1) of the Act is prospective has been held by this Court in order dated 29.11.2022 passed in a bunch of appeals, the lead matter being ITA 268/2022, titled PR. COMMISSIONER OF INCOME TAX -7 Vs. PEC LTD.”
CONCLUSION
The light of the above observations made the learned Court concluded that the order passed by the learned Appellate Tribunal allowing the said deduction shall not be interfered with. The Court opined that no substantial question of law arose in the present appeal for consideration.
