Exp. incurred by MRF on establishing foundation to give training to pace bowlers allowable as business exp.: HC

Case details: MRF Ltd. v. DCIT - [2021] 128 taxmann.com 21 (Madras).

Judiciary and Counsel Details

• • T.S. Sivagnanam & Ms. R.N. Manjula, JJ.
  • Vikram Vijayaraghavan for the Appellant
  • T. Ravi Kumar, Sr. Standing Counsel for the Respondent.

Facts of the Case

Assessing Officer (AO) noted that assessee was engaged in the business of giving training to pace bowlers in India. Assessee claimed a deduction for expenditure incurred on establishing MRF pace foundation as a deduction. AO issued show-cause notice as to why said expenditure couldn’t be added to the assessee’s total income. Assessee submitted that they were one of the largest corporate sponsors of sports in India, especially cricket, as millions in the country closely follow the game. The promotion of this sport in the form of product endorsement, training of bowlers through Pace Foundation had made MRF a household name in India. Because of this, MRF got huge publicity, especially in TV Media, and promotes the MRF brand, thereby helping sell MRF products in India and other countries. AO rejected assessee’s contention.

Aggrieved by order of AO, assessee preferred an appeal before the CIT(A). The CIT(A) allowed assessee’s claim by holding that on account of training pace bowlers, the corporate image and brand of the company was promoted widely because of its association with the MRF Academy. CIT(A) further held that the promotion of sales was always expedient for the promotion of business. How and in what manner sales can be promoted are matters of business expediency in the field of which assessee is not only the expert but also the sole decider. ITAT reversed the order passed by CIT(A).

High Court Held

On further appeal, Madras High Court held that assessee had been able to point out certain facts before the AO and before the CIT(A) as to how the training of pace bowlers had helped them in business activity. The contentions placed by assessee had not been found to be false or baseless. In such circumstances, it was best for the Department to leave it to assessee to decide what was best for them and the company’s health. The CIT(A) had observed that assessee could get popularity because of its close association with the game of cricket. It was comparable to any other mode of advertisement establishing hoardings, publicity material, and other conventional modes of advertisement. There was no observation that the expenditure was not genuine. Thus, expenditure incurred by assessee towards establishing a Pace Foundation was to be allowed as deduction.

Case Review

Followed

• • CIT v. Dalmia Cemet (Bharat) Ltd. [2002] 121 Taxman 377/254 ITR 377 (Delhi) (para 15)
  • Hero Cycles (P) Ltd. v. CIT[2016] 236 Taxman 447/[2015] 63 taxmann.com 308/379 ITR 347 (SC) (para 16)
  • S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74/288 ITR 1 (SC) (para 16)
  • CIT v. Delhi Cloth and General Mills Co. Ltd. [1978] 115 ITR 659 (Delhi) (para 22)

Distinguished

• • Nahar Spg. Mills Ltd. v. CIT [2014] 49 taxmann.com 565/226 Taxman 364 (Punj. & Har.)
  • CIT v. Industrial Development Corpon. of Orissa Ltd. [2001] 115 Taxman 626/249 ITR 401 (Orissa)
  • CIT v. Jeevandas Laljee & Sons[1999] 106 Taxman 139/[2000] 245 ITR 719 (Mad.)
  • CIT v. Infosys Technologies Ltd. [2012] 21 taxmann.com 532/349 ITR 588 (Kar.) (para 18)
  • CIT v. Malayalam Plantations Ltd. [1969] 53 ITR 140 (SC) (para 19)
  • Atofina Peroxides India Ltd. v. Dy. CIT [T.C.(A) Nos.670 & 671 of 2010, dated 29-1-2020]
  • CIT v. Sambandam Spg. Mills (P.) Ltd.[2003] 133 Taxman 667/263 ITR 115 (Mad.)
  • Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP.)
  • CIT v. Madras Refineries Ltd. [2009] 177 Taxman 8/313 ITR 334 (SC) (para 20)

List of Cases Referred to

• • JT. CIT v. ITC Ltd. [2008] 112 ITD 57 (Kol.) (SB) (para 7)
  • CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) (para 10)
  • CIT v. Delhi Cloth & General Mills Co. Ltd. [1978] 115 ITR 659 (Delhi) (para 11)
  • CIT v. Dalmia Cement (P.) Ltd. [2002] 121 Taxman 706/254 ITR 377 (Delhi.) (para 15)
  • Hero Cycles (P.) Ltd. v. CIT [2016] 236 Taxman 447/[2015] 63 taxmann.com 308/379 ITR 347 (SC) (para 16)
  • S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74/288 ITR 1 (SC) (para 16)
  • Nahar Spg. Mills Ltd. v. CIT [2014] 49 taxmann.com 565/226 Taxman 364 (Punj & Har.) (para 18)
  • CIT v. Industrial Development Corpn. of Orissa Ltd. [2001] 115 taxmann.com 626/249 ITR 401 (Orissa) (para 18)
  • CIT v. Jeevandas Laljee & Sons [1999] 106 Taxman 139/[2000] 245 ITR 719 (Mad.) (para 18)
  • CIT v. Infosys Technologies Ltd. [2012] 21 taxmann.com 532/349 ITR 588 (Kar.) (para 18)
  • Atofina Peroxides India Ltd. v. Dy. CIT [T.C. Appeal Nos. 670 & 671 of 2010, dated 29-1-2020] (para 20)
  • CIT v. Sambandam Spg. Mills (P.) Ltd. [2003] 133 Taxman 667/263 ITR 115 (Mad.) (para 20)
  • Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP.) (para 20)
  • CIT v. Madras Refineries Ltd. [2009] 177 Taxman 8/313 ITR 334 (SC) (para 20)