1995 (11) TMI 36 - HC - Income Tax

Business Expenditure, Expenditure Incurred, Investment Allowance, Question Of Law, Words And Phrases

Summary

Issues:
1. Allowance of expenditure for boarding, lodging, and education of orphans as a business expenditure.
2. Entitlement to investment allowance on new plant and machinery for coal extraction.

Analysis:

Issue 1:
The court deliberated on whether the expenditure incurred for boarding, lodging, and education of orphans by the assessee-company could be considered a business expenditure. The Tribunal found a connection between the expenditure and the company's business activity, as the orphans were trained and eventually absorbed into the company's service. However, the court emphasized that philanthropic measures not related to the company's business activity cannot be treated as business expenditure unless prompted by business expediency. The court noted a lack of clarity on whether the company's actions were motivated by business reasons. The Tribunal's reasoning on considering the expenditure as a means to acquire prospective coal miners was questioned, leading to the conclusion that a debatable question of law exists, warranting further consideration.

Issue 2:
Regarding the entitlement to investment allowance on new plant and machinery for coal extraction, the court examined the condition that the machinery should be installed for the business of manufacturing or production. The Revenue argued that coal extraction does not constitute production. The court referred to a previous decision and legislative history to interpret the term "production." It was observed that while every manufacture is a form of production, not all production amounts to manufacture. The court concluded that coal extraction qualifies as a production activity based on common usage and statutory language. The court rejected the Revenue's argument and affirmed that the benefit of the investment allowance is available to the assessee. Given the clear legal position and absence of doubt, the court declined to refer this issue for further consideration, ensuring certainty for the assessee.

In summary, the court allowed the reference on the first question regarding the expenditure for orphans as a business expense due to the presence of a debatable legal issue. However, the court declined to refer the second question concerning investment allowance, as the legal position was clear, and there was no ambiguity benefiting the assessee, a public sector undertaking.