1999 (10) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Allowability of payment to FACT school as a deduction.
2. Tribunal's finding on the understanding with the assessee.
3. Comparison of contribution to FACT school with Government School, Eloor.
4. Deletion of addition to closing stock u/s 145(1).
5. Change in the method of valuation of closing stock.

Summary:

Issue 1: Allowability of Payment to FACT School as a Deduction
The Tribunal allowed the deduction of Rs. 5,34,406 paid to FACT school, considering it as an expenditure for the welfare of the employees and for the business purpose of the assessee. The Revenue argued that this payment was a donation and should be disallowed u/s 40A(9). However, the court held that the expenditure was for the welfare of the employees and allowable u/s 37(1) and 40A(10). The court cited Mysore Kirloskar Ltd. v. CIT and CIT v. Bombay Dyeing and Manufacturing Company Ltd. to support its decision.

Issue 2: Tribunal's Finding on the Understanding with the Assessee
The Tribunal's finding that there was an understanding between the assessee and FACT school was upheld. The court found that the expenditure was wholly and exclusively for the welfare of the employees, thus supporting the Tribunal's conclusion.

Issue 3: Comparison of Contribution to FACT School with Government School, Eloor
The court rejected the Revenue's argument that the contribution to FACT school should be equated with the contribution to Government School, Eloor. The court found that the expenditure was specifically for the welfare of the employees' children and thus allowable.

Issue 4: Deletion of Addition to Closing Stock u/s 145(1)
The Tribunal deleted the addition of Rs. 9,00,000 made to the closing stock. The court upheld this decision, noting that the change in the method of valuation was bona fide and adopted at the instance of the Accountant-General (Audit), Kerala. The court cited CIT v. Carborandum Universal Ltd. and Melmould Corporation v. CIT to support its decision.

Issue 5: Change in the Method of Valuation of Closing Stock
The court found that the change in the method of valuation of closing stock was bona fide and intended to be followed in subsequent years. The court held that the revised method of valuation was rightly accepted by the Tribunal and there was no reason to interfere with the order.

Conclusion:
All questions (1 to 5) were answered in favor of the assessee and against the Revenue. The court directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.