Tuesday, November 11, 2014


                                                  Subash Agarwal, Advocate
                                                                                    CA Swati Baid
In India, people have immense faith in God and thus some amount of money is always deployed by people for Him. People, on regular basis, expend certain amount of money in performing different types of puja. These expenses are debited while preparing the Profit and loss account of the business concern of a person. But whether the same is allowed as deduction while computing the total income of the assessee for the Income Tax purpose? This question has always been in controversy and various judgements have been pronounced, both in favour and against the view that the expenses incurred in relation to the any puja can be claimed as deduction under the Income Tax Act.
In Income Tax Act, a person can claim the deduction of an expense from the income derived from business and profession. The expenses which are incurred for the business purpose are only allowed as deduction u/s 30 to 44 DB of the I.T.Act, 1961. Not all but specific expenses are only allowed as deduction as business expenses in the Income Tax. However, there is a residuary section, sec 37(1), under which the expenses not covered under the specific sections 30 to 36, the deduction for those expenses can be claimed under this section provided certain other conditions are fulfilled.
As per sec. 37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.
Thus, for claiming the deduction u/s 37(1) of the Act following conditions are to be fulfilled:
·         Such expenditure should not be covered under the specific sections i.e. sections 30 to 36
·         The expenditure should not be of capital nature
·         The expenditure should be incurred during the previous year
·         The expenditure should not be of personal nature
·         The expenditure should have been incurred wholly and exclusively for the purpose of the business or profession
·         The business should be commenced.
The expenses incurred by the assessee in relation to any puja performed especially during the inauguration of the new office and at the time of Diwali Pujan do not fall under any specific Sec of the I.T.Act where the deduction of the same can be claimed. But, the same can be claimed as deduction under the residuary sec 37(1) of the Act provided the abovementioned conditions are fulfilled.
However, various courts have taken a contrary view and have upheld disallowance of expenses relating to any puja treating them either as a personal expense of the director of the company and not the business expenditure. The High Court of Karnataka in the case of Sanghameshwar Coffee Estates Ltd. [1986] 160 ITR 203 and the Bombay High Court in the case of Kolhapur Sugar Mill Ltd. [1979] 119 ITR 387 has held that pooja is performed by the followers of a particular religion or faith. A company, which is only a juristic person, cannot claim to profess, practice, or follow any religion or faith. It was held that a company, which is a creation by legal fiction and not a real person made up of flesh and blood, cannot profess any religion and therefore, performance of pooja cannot be said to be the need of business.
However, the High Courts in the above cases did not consider the fact that any expenditure incurred by the director for or on behalf of the company has to be treated as a business expense. The pooja performed would motivate the employees and workers to contribute to the development and progress of the business of the company.
The Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd. [1982] 134 ITR 458 has held that “no curbs can be placed on the discretion of the assessee to provide the type of recreation, which, according to it, would best advance the interest of the business. If the recreation provided, even if it is in the nature of the religious activity, has direct nexus with the welfare of a class of workers engaged by the assessee, it is wholly immaterial if the recreation provided is directly or indirectly connected with the religious tenets of a section of the society”.
Reliance can be placed in the case of Brijramandas and Sons [1983] 142 ITR 509 wherein the Allahabad High Court has held that Ganeshjiki Pooja expenses, which Hindu traders do in a customary way at the time of Mahurat or opening of their account books on the auspicious occasion of Diwali, are to be treated as expenditure laid out wholly and exclusively for the purpose of assessee’s business and is therefore allowable u/s 37(1) of the Income Tax Act, 1961.
 CBDT in its Circular no. 13/A/20/68-IT(A-II) dated 3.10.1968 has stated that as the expenses incurred on the occasion of Diwali and mahurat are in the nature of business expenditure, it has been decided not to lay down any monetary limits for the purpose of their allowance in the income-tax assessments subject to the Income-tax Officer being satisfied that the expenses are admissible as a deduction under the law and are not expenses of a personal, social or religious nature.
In our opinion,  puja expenses incurred by the assessees are not  personal expenses and are incurred wholly and exclusively for the business and should be allowed as deduction u/s 37(1) of the Act. Judiciary has taken different views on different occasions and CBDT circular has confounded the problem by giving the discretion to the assessing officer in the matter.
Thus,  one has to wait for the authoritative pronouncement from the Supreme Court in the matter to clinch the issue. It is better that the business associations/ chambers of commerce  can request the CBDT to unambiguously clarify the allowability of the same. After all, people’s faith in the providence to bring prosperity through business has inextricable linkage with the business of the assessee and as rightly held by the Punjab & Haryana High Court, puja is a sort of recreation provided to the employees.

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