1973 (10) TMI 5 - HC - Income Tax

Commercial expediency - Assessee is a private limited company carrying on business in the purchase and sale of motor vehicles spare parts and accessories and agricultural implements besides having a number of workshops where servicing and repairs to vehicles as well as body building is done - assessee-company bought land in the name of District Collector for construction of houses for company s workers by Government under a scheme. Similar expenditure was to be incurred for a few years. Whether the amount spent for the purchase can said to be wholly and exclusively for the purpose of the assessee s business and whether assessee acquired a capital asset or advantage of an enduring benefit

Summary

Issues Involved:
1. Whether the expenditure of Rs. 39,696 was a permissible deduction as a revenue expenditure incurred wholly and exclusively for the purposes of the assessee's business.
2. Whether the Tribunal's conclusion that the expenditure was incurred wholly and exclusively for the purposes of the business is based on a reasonable view of the facts of the case.
3. Whether the conclusion of the Tribunal that the expenditure neither resulted in the acquisition of a capital asset nor in bringing in any benefit or any enduring benefit to the assessee is based on a reasonable view of the facts and circumstances of the case.

Detailed Analysis:

Issue 1: Permissibility of Deduction as Revenue Expenditure
The assessee, a private limited company engaged in the business of motor vehicles and related services, claimed a deduction of Rs. 39,696 under "welfare expenses" for the purchase of land intended for constructing houses for its workers. The expenditure was made under the subsidised industrial housing scheme sponsored by the State Government. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim, viewing it as a capital expenditure providing a perennial advantage to the company. However, the Tribunal held that the expenditure was incurred wholly and exclusively for the purpose of the assessee's business and did not result in the acquisition of a capital asset. The High Court agreed with the Tribunal, noting that the expenditure was made as a matter of commercial expediency and was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The court concluded that the expenditure was revenue in nature and allowable as a deduction.

Issue 2: Reasonableness of Tribunal's Conclusion on Business Purpose
The Tribunal concluded that the expenditure was incurred wholly and exclusively for the purpose of the assessee's business. The High Court noted that the Tribunal's finding was based on the fact that the expenditure was made under a government scheme to provide housing for the company's workers. The court observed that the expenditure was necessary for the business as it aimed to improve worker satisfaction and productivity. The court upheld the Tribunal's view that the expenditure was made for the business's benefit and was thus reasonable and justified.

Issue 3: Acquisition of Capital Asset or Enduring Benefit
The Tribunal found that the expenditure did not result in the acquisition of a capital asset or an enduring benefit for the assessee. The High Court examined the nature of the expenditure and noted that the land was purchased in the name of the District Collector, not the assessee, and the title vested with the Government. The court emphasized that the expenditure was part of a government welfare scheme, and the assessee did not acquire any capital asset. The court also considered the recurring nature of the expenditure under the scheme, which required similar expenses every year, further supporting the view that it was not a one-time capital expenditure. The High Court agreed with the Tribunal that the expenditure did not bring any enduring benefit to the assessee and was correctly classified as revenue expenditure.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the expenditure of Rs. 39,696 was a permissible deduction as revenue expenditure incurred wholly and exclusively for the purposes of the assessee's business. The court found the Tribunal's conclusions reasonable and based on a proper appreciation of the facts and circumstances of the case. The reference was answered in the affirmative and against the revenue, without costs.