K.L. Manjunath, J.

1. The revenue has come up in this appeal challenging the legality and correctness of the order dated 5.2.2004 in ITA. No. 716/BANG/2002, in respect of the assessment year 1998-99.

2. The Assessee is a State owned Corporation enjoying the status of a Company for the assessment year 1998-99. The assessee declared its total income of Rs. 2,58,41,720/-. The return was taken for scrutiny. The Assessing officer disallowed the claim of Rs. 15 lakhs spent by the assesses under the head miscellaneous expenses which was incurred by the assesses at the instance of the State to promote its business at any village known as Model Village in Mysore district under the AGs Mysore Zilla Panchayath, Swasthi Gram Yojana, Claim was disallowed toy the assessing officer only on the ground that the amount spent by the assessee in a sum of Rs. 15 lakhs is not for its business purpose. Therefore the same was disallowed.

3. The assessee aggrieved fey the assessment order, preferred the appeal before the Commissioner of Income Tax. The assessee relied upon the judgment of the Madras High Court in CIT v. Cheran Transport Corporation Ltd. : 219 ITR Page 203 (Madras). The Commissioner for Income Tax Appeals allowed the appeal of the assessee by relying upon the aforesaid decision. Challenging the same, the revenue filed the appeal before theAT, Bangalore.

4. Before theAT, the revenue contended that the judgment in Cheran Transport Corporation, has no applicable to the facts of the case on the ground that in that case when Transport Corporation on the request of the State Government, the amount was spent by it and therefore it was held that the amount spent by the other Corporation was for the benefit of the public and does not violate the public policy. The ITAT rejected the claim of the revenue on the ground that the assessee in the present case has spent amount of Rs. 15 lakhs for the development of modal village in Mysore district under the AGs Mysore Zilla Panchayath and as such, the developmental projects is to promote its business and the same is not opposed to public policy. Accordingly, appeal came to be dismissed, Aggrieved by the same, the present appeal is filed.

5. Appeal is admitted to consider the following substantial question of law;

(i) Whether the Appellant Authorities were correct in holding that the Assessee which carries on the business of financing industrial undertakings in Karnataka is under a social obligation in lieu of the directions issued by the State Government to make contributions towards the development of various programmes of the State Government, which would facilitate to carry on its day to day business activity and thus such contribution would be an allowable expenditure under Section 37 of the

(ii) Whether the expenditure claimed by the Assessee towards contributions made to Swasthi Grama Yojana can be claimed as exempt from tax only if is satisfies the various conditions stipulated under the Income Tax Provisions to grant such exemption, as the w a self contained code and since such contribution was not allowable as a deduction exempt from tax and the same cannot be allowed as an expenditure

6. We have heard the learned Counsel for the parties.

7. We are of the opinion that the amount of Rs. 15 lakhs spent by the assessee has to be considered towards its business promotion. Since the Zilla Panchayath under a scheme known as Swasthi Grama Yojana was trying to develop model villages by providing facilities like develop roads to new markets organizing self help groups, community centres and development of infrastructural facilities. According to us, if the assessee has been spent amount towards the development of infrastructural facilities of villages and construction of a new market to organize self help groups would certainly promote the business of the assessee as the assesses can lend the loan only if such establishments are there m villages. We are also of the opinion that if the assessee can spread its activities to rural parts of the State, it would cater the need of the people and would satisfy the purpose for which it is created by the State, Therefore, we are of the opinion that the question of law framed in this appeal has to be answered against the revenue.

8. Accordingly, appeal is dismissed.