1980 (10) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Depreciation on the temple building u/s 32.
2. Expenditure on grant to the temple management committee u/s 37.
3. Deduction of expenditure on monsoon gifts for the assessment year 1970-71.

Summary:

Issue 1: Depreciation on the Temple Building u/s 32
The assessee, a company deriving income from manufacturing cycles and spare parts, constructed a temple within its factory premises primarily for the benefit of its employees. The cost of the temple amounted to Rs. 3,01,375, and the assessee claimed depreciation of Rs. 15,053 for the relevant assessment year. The ITO, AAC, and Tribunal denied this claim, stating that the temple did not qualify as a business asset under s. 32(1)(iv) of the Act. The court, however, held that the temple served as a recreational center for the employees, contributing to industrial peace and advancing the business interests. Thus, the court answered the first question in the negative, in favor of the assessee.

Issue 2: Expenditure on Grant to the Temple Management Committee u/s 37
The assessee incurred an expenditure of Rs. 5,500 as a monthly grant to the temple management committee, claiming it as an expense for the benefit of the employees and wholly and exclusively for business purposes. The authorities below rejected this claim. The court, aligning with its reasoning on the first issue, held that the expenditure had a direct nexus with the welfare of the employees and was thus allowable. Consequently, the second question was answered in the negative, in favor of the assessee.

Issue 3: Deduction of Expenditure on Monsoon Gifts for the Assessment Year 1970-71
The assessee spent Rs. 47,539 on a "Monsoon Gift Scheme" to boost sales, which was incurred in the earlier assessment year ending on December 31, 1968. Since the assessee followed the mercantile system of accounting, the authorities did not allow this amount to be deducted from the taxable income of the current assessment year. The court upheld this decision, answering the third question in the affirmative, in favor of the revenue.

Conclusion:
The court ruled in favor of the assessee on the first two issues, allowing depreciation on the temple building and the expenditure on the grant to the temple management committee. However, it ruled in favor of the revenue on the third issue, disallowing the deduction of the expenditure on monsoon gifts for the assessment year 1970-71. There was no order as to costs.