Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1985-86 - Assessee-company claimed deduction of a contribution made to a trust formed on 27-11-1984 of which assessee was settlor and all its dealers were beneficiaries - Assessing Officer disallowed deduction on ground that trust was created for benefit of dealers who were third parties and that amount had not been spent wholly and exclusively for purpose of business - Tribunal allowed such expenditure holding that trust did not come into existence on 27-11-1984, but on 26-12-1984 when a sum was transferred by assessee-company and same was accepted by trust - Whether mere fact that trust deed, dated 27-11-1984 had failed was immaterial when all conditions for creation of a valid trust had been fulfilled as there was a settlor-settlee relationship and sum had been transferred to trust, and trustees had accepted same on terms set out in deed of trust - Held, yes - Whether it could be stated that deed of trust was vague and beneficiaries were unknown and objects of trust were uncertain - Held, no - Whether unless objects for which trust was created were accomplished, expenditure incurred could not be business expenditure - Held, yes - Whether since trustees were given unfettered discretion in matter of application of funds to incur or not to incur expenditure for objects of trust, benefit of expenditure would be ephemeral and, therefore, there was no direct or indirect nexus between expenditure incurred and business of assessee-company and test of commercial expediency failed - Held, yes FACTS The assessee, a public limited company, carrying on the business of manufacture of television sets, claimed deduction on account of contri-butions made to a trust. The Assessing Officer found that the trust was formed on 27-11-1984 with the assessee-company as settlor and, all the dealers of the company were the beneficiaries, and a sum was paid by the assessee on 26-12-1984. The Assessing Officer rejected that claim on the ground that trust was not created for the benefit of employees, but dealers who were third parties and that the amount had not been spent wholly and…

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