SECTION 37(1) OF INCOME TAX ACT 1962

As per section 37(1) of the Income Tax Act 1961, any expenditure (not being expenditure of the nature described in section 30 to section 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 purpose of the business or profession shall be allowed as deduction in computing the income chargeable under the head PGBP.

General clause for deduction

Any expenditure other than specifically mentioned in the preceding paragraph shall be allowed as deduction provided the following conditions are satisfied:

(1) It is not in the nature of capital expenditure;

(2) It is not in the nature of personal expenses of assessee; and 

(3) It is laid out wholly and exclusively for the purpose of business or profession of the assessee.

EXPLANATION 1 TO SECTION 37(1)

Corporate social responsibility expenses
For the removal of doubt, it is hereby declare that for the purpose of sub-section(1), any expenditure incurred by an assessee on the activity relating to corporate social responsibility referred to in section 135 of the Companies Act, 2014 shall not be Deemed to be an expenditure incurred by the assessee for the purpose of the business or profession.

 EXPLANATION 2 SECTION 37(1)

Illegal payment 
For the removal of doubt, it is hereby declare that any expenditure incurred by and assessee  for any purpose which is an offence or which is prohibited by law shall be Deemed to have been incurred for the purpose of business or profession and no deduction is allowed shall be made in respect of such expenditure.

The above amendment will result in disallowance of claim made by certain assessee in respect of payment on account of protection money, extortian, hafta, dribes, etc as business expenditure. It is well decided that unlawful expenditure is not allowable expenditure in computation of income.



 KEY NOTE

(1)  Donation to Swachh Bharat Cess and clean Ganga fund form part of CSR spend such donation or not deductible under section 80G if they are treated as CSR spend assessee can claim deduction under section 80G for donation made to swachh Bharat course and clean Ganga fund or can claim that the amount has been spent under CSR he cannot claim dual deduct benefit.

(2)  Activities undertaken in pursuance of the normal course of business of the company shall not be regarded as CSR activity hence expenditure as such activities not be counted as CSR spend rule 4 and rule 6 of CSR rules.

(3)   Contribution to prime minister relief fund or any fund set up by central government for socio economic development and relief and welfare of SC ST OBC minority and women will be treated as CSR spend and hands assessee can claim deduction under section 80G on Sunday Suspense

(4)  Expenditure on activity relating to corporate social responsibility is not deductible under section 37(1).

(5)  The CSR expenditure which is of the nature described in 30 to section 36 of the Act shall be allowed deduction under those section subject to fulfillment of condition, if any,  specified therein.

(6)  Deduction to certain trusts notified under section 35(1)(ii) / 35(1)(iii) can be treated as CSR spend and hence assessee can claim deduction under section 35(1)(ii)  / 38(1)(iii).

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SECTION 44AD OF INCOME TAX ACT 1962

WHAT IS GST IN INDIA MEANING AND FULL EXPLANATION 

CIRCULAR NO. 5/2012, DATED 01-08-2012


Section 37(1) - Allowability of Business Expenditure - Inadmissibility of expenses incurred in providing freebees to medical practitioners by pharmaceuticals and allied health sector industries.

(1)  It has been brought to notice of the board that some pharmaceuticals and allied health sector industries are providing freebees to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India which is regulatory body constituted under the medical council Act 1956.

(2)  The council in exercise of its statutory powers amended the Indian Medical Council (professional conduct, etiquette and ethics) Regulations, 2002 on 10/12/2019 imposing prohibition on the medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceuticals and allied health sector Industries.

(3)  Section 37(1) of the Income Tax Act provided for deduction of any revenue expenditure other than those falling under section 32 to 36 from the business income if such expenses is laid out / expanded wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expenses, if the same has been incurred for the purpose which is either an offence or prohibited by law.

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NEED FOR GST IN INDIA

NOTICE UNDER SECTION 142 OF INCOME TAX ACT 1962

CIT V.  T. C.  REDDY


Where goods have been confiscated by custom authorities in a foreign country due to certain statutory violation, can the same be treated as the loss of stock-in-trade, and claimed as deduction?

The high court held that the loss arising on confiscation of pharmaceuticals drugs is a business loss, based on the Supreme Court's decision in Dr. T. A.  Qureshi's case.

Dr. T.  A.  Qureshi Vs.  CIT


Lost of illegal business shall be allowed to set-off from profit of legal business.

Subsequent to the recovery and seizure of huge quantity of heroin drugs from the assessee doctor's possession, he filed return claiming that since the heroin seized from him fromed part of stock in trade, hence, its loss on account of seizure was an allowable deduction while computing his profit and gains from business & profession. The Assessing Officer, however, disallowed the assessee said claim.


Any penalty/ interest paid under Direct Tax Law is not deductible.


Expenditure incurred due to failure to deduct TDS is not allowable as a business expense.

Indian Aluminium Company Limited Vs. CIT

Assessee paid foreign collaborators fee without deducting TDS. Then he paid TDS to government. Subsequently the assessee failed to recover TDS from the collaborator and write off the same in book. Held it cannot be treated as business expenditure under section 37(1), since the amount paid for the default in deducting TDS under the Income Tax Act. It cannot be claimed as bad debts under section 36(1) (vii) as the condition of bad debt are not satisfied.
SECTION 37(1) OF INCOME TAX ACT 1962 SECTION 37(1) OF INCOME TAX ACT 1962 Reviewed by Unknown on September 26, 2018 Rating: 5

2 comments:

  1. Excellent article..satyajit singh

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