To have better understanding of section 37(1), a few instances are given where expenditures are allowable under section 37(1):
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Litigation expenses in protecting the trade or business.
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Expenditure incurred for the preservation or protection of the asset or for saving such asset from destruction, dissipation or wastage in the interest of and for the benefit of assessee’s business.
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Litigation expenses incurred in order to defend or maintain an existing title to the business asset.
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Expenses on litigation (whether civil or criminal) if incurred wholly and exclusively for the purpose of the business.
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Legal charges for obtaining a loan from a financial institution.
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Royalty paid by an assessee to a company for using its logo.
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Consultancy charges paid for maintenance of software.
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Environment monitoring expenses and community development expenses.
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Litigation expenses for making agreements, various deeds, etc.
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Legal expenses incurred in altering the articles of association so as to bring it in conformity with the changes brought about in the Companies Act.
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Damages for breach of contract for export of goods before declaration of export policy of the Government.
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Damages paid to a worker in order to dismiss him in the interest of business.
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Damages for failure to fulfil a contract in time.
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Brokerage paid for raising loan to finance business.
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Stamp and registration charges for the purpose of entering into agreement for obtaining overdraft facilities.
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Amount spent towards stamps, registration fees, lawyer’s fees, etc., for obtaining loan or raising money by issue of debentures (not shares).
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Guarantee commission paid to brokers and shareholders for giving personal guarantee to obtain credit facility.
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Commission paid at a percentage of profits to general manager.
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Commission paid to selling agents.
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Contribution to a trade syndicate with a view to preventing uneconomic competition.
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Contribution to a union formed for opposing nationalisation of assessee’s business.
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Salary and perquisite to employees.
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Salary, bonus and travelling expenses paid by a partner-assessee to his staff to look after his interest and to earn income for partnership.
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Expenditure incurred in obtaining use of trademark, technical information, training of apprentices and technicians.
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Recurring expenses incurred on imparting of the basic training to apprentices under the Apprentices Act, 1961.
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Expenses incurred on the occasion of Diwali and mahurat subject to the Assessing 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.
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Initial expenditure on the first installation of fluorescent lights is treated as capital expenditure and all subsequent expenditure for replacement of tubes is treated as revenue expenditure and are allowed in toto.
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Expenditure in respect of commitment charges paid by the borrower with regard to the amount of loan not drawn by him but kept in readiness by the lender for disbursement.
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Premia paid on loss of profit policies.
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Professional tax paid by a person carrying on business or trade.
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All expenditure on maintenance of a tea garden including expenditure on the maintenance of an area that has not reached maturity.
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Deposit made under “own your telephone” scheme [is allowable as deduction in the year of payment and in case the telephone is not installed and money is returned, it is chargeable to tax under section 41(1)].
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Forfeiture of security deposit for breach of contract.
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Expenses on registration of trademarks.
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Penalty levied for supply of foodgrains not conforming to the contract quality.
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Expenditure incurred by a surgeon to keep himself up-to-date about the latest technique in surgery.
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Substantial repair charges on plant and machinery being necessary owing to long neglect of assets.
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Entertainment expenses incurred on opening of new branches at different places.
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Expenditure incurred to protect capital asset income of which is assessable to tax.
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Cash shortage found in business at the end of day.
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Periodical payment for the use of goodwill.
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Expenditure incurred on renovation of the living room, bathroom, back verandah, study, etc., of branch office.
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Municipal property tax chargeable under local tax law of Japan.
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Expenditure incurred to secure overdraft facilities for the business purposes.
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Annual listing fees paid to stock exchanges.
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Expenditure on management of temple in factory premises for recreation of employees.
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Contribution given under a development scheme for construction of roads around factory building for facilitating the transport of sugarcane to the factory and the flow of manufactured sugar out of the factory.
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Expenditure incurred for purchase of loom hours.
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Royalty payable on goods manufactured as a consideration to acquire monopoly rights to manufacture the product.
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Expenditure on licence fees for the import of capital goods and registration fees of trade mark.
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Expenditure on valuation of shares.
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Amount paid in compromising a bona fide dispute and as part of an arrangement for enabling the assessee to continue business.
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Expenditure incurred by the assessee on replacement of damaged moulds.
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Expenditure in regard to contribution made by the assessee-company to State Electricity Board towards laying of additional circuit line in order to meet increased demand of company.
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Expenditure on re-routing of pipeline in order to obtain saline free water for factory.
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Donation/contribution made by an assessee to any relief fund, such as Chief Minister’s Drought Relief Fund or a District Welfare Fund established by District Collector for benefit of public with a view to securing benefit to assessee’s business .
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Amount paid by the assessee-company for Flag Day Fund on Government’s appeal.
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Contribution made by the assessee, running a refinery, to railway department for construction of railway track and siding which are necessary for the purpose of smooth running of business in a profitable and advantageous manner (only expenditure incurred in relevant year of assessment alone is to be allowed).
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Contribution made by the assessee-company to State Housing Board for construction of tenements for its workers, ownership of which tenements remained with Housing Board.
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Expenditure incurred by the assessee-company on foreign visit of director and his wife in connection with medical treatment of the director.
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Expenditure incurred by the assessee on plantations in factory premises and residential quarters of company, with a view to making atmosphere pollution free.
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Royalty paid by the assessee for user of trademark of another company.
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The expenditure incurred solely for repairs and modernizing the hotel and replacing the existing components of the building, furniture and fittings, with a view to create a conductive and beautiful atmosphere for the purpose of running of the business of a hotel.
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Penalty which is compensatory in nature and which is paid for breach of a contract or statute is deductible.
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Software programme once developed by the assessee cannot be said to be of enduring benefit and expenses incurred in developing such software programme are allowable as revenue expenditure.
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Expenditure on issue of bonus shares.
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Harvesting and transportation expenses incurred by the Co-operative Sugar Mills for procuring sugarcane from farmers, who are members of such Co-operative Sugar Mills and who are bound under an agreement to supply the sugarcane exclusively to the concerned sugar mill.
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Expenditure for improving the performance of existing products is deductible.
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Expenditure incurred for purpose of sub-division of shares for easy trading of shares in market, is revenue in nature and deductible.
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Expenses incurred by an assessee for preliminary work for a project (which has been abandoned for some unavoidable reasons) is deductible.
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Advertisement expenditure incurred by an assessee for building up its brand is deductible.
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Expenses on replacement of mother board/UPS and expenditure incurred on ERP software/customizing software, are deductible.
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Expenditure incurred on garden to control pollution is deductible.
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