Generally speaking, the expenditure incurred by a business enterprise in connection with puja etc is allowed as a deduction in computing the business income of the tax payer. In one judgment the Chhattisgarh High Court in the case of Hira Ferro Alloys Ltd vs. CIT 326 ITR 261 held that the expenditure incurred by the company on account of puja as also Vishwakarma Puja cannot be treated as an expenditure wholly and exclusively for the purposes of the business of the assessee, hence the said expenditure will not be allowed under section 37 of the Income-tax Act, 1961.

Fight for deduction

Briefly stated, the facts of the case are that the assessee was engaged in the business of manufacture and sale of ferro and silico manganese utilized for production of various grades of steel by the steel plants. The appellant filed a return for the assessment year 1992-93, showing an income of Rs 13,35,910. However, assessment was made at a total income of Rs 15,79,780. The claim of the appellant of Rs 9,097 as expenditure incurred towards performing puja during the financial year, including expenditure of Rs 6,181 incurred towards Vishwakarma Puja, was disallowed by the Assessing Officer on the ground that the appellant being a company cannot profess any religion, and therefore, performance of puja cannot be said to be need of the business; the expenditure might be the personal expenses of the director.

When the matter came up before the Commissioner of Income-tax (Appeals), he allowed the appeal of the assessee and deleted the entire disallowance as made by the Assessing Officer. When the matter came up before the High Court, it was argued on behalf of the assessee that it is common knowledge that Vishwakarma Puja is performed by the workers/labourers of every industrial house; the expenditure was, in fact, in respect of labourers' welfare; the Assessing Officer was not correct in holding that the assessee was a company and, therefore, not a real person and as such, cannot profess any religion and performance of puja cannot be said to be the need of the business of the company. The company is run by the management and labourers - skilled or unskilled. The expenditure on puja acts as a morale booster for the employees and labourers associated with the company and thus, it is clearly associated with the assessee's business. The puja expenditure was not directly or indirectly connected with the personal expenditure of the director and the same was purely connected with the business of the company and as such, deductible under section 37 of the Act.

Arguments to support

The assessee placed reliance on the earlier judgments in the case of CIT vs. Chandulal Keshavlal and Co. (1060) 38 ITR 601 (SC), CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), Brijraman Das and Sons v. CIT (1983) 142 ITR 509, Atlas Cycle Industries Ltd. v. CIT 134 ITR 458 etc. etc. However, after considering all the judgments in support of its claim, the judges of the High Court observed that in the matter of CIT v. Saravana Spinning Mills P. Ltd. (2007) 293 ITR 201 (SC), the Supreme Court while considering the scope of deductions under section 37 of the Act, has held in paragraph 21 of the judgment that a particular item of expenditure may be deductible if the expenditure does not fall within sections 30 to 36; that it should have been incurred in the accounting year; that it should be in respect of a business carried on by the assessee; that it should not be on personal account of the assessee; that it should not be in the nature of capital expenditure and it should be spent wholly and exclusively for business.

The High Court Verdict

Finally, the conclusion of the High Court judges in the above case was that the expenditure incurred on puja/Vishwakarma puja by a company cannot be treated as expenditure incurred wholly and exclusively for the purposes of business or profession of a company, and the assessee cannot be allowed any deduction under section 37(1) of the Act towards such expenditure. The High Court found no illegality or infirmity in the order of the Tribunal restoring the order of the Assessing Officer.