1996 (2) TMI 8 - SC - Income Tax

Assessee-company is entitled to a deduction for a sum in respect of the contribution made by it to the Maharashtra Housing Board towards the construction of tenements for its workers - professional charges paid by the assessee-company to its solicitors for effecting the amalgamation of Nawrosjee Wadia and Pressing Company with it, was of revenue nature and should be allowed as a deduction in the computation of its total income

Summary

Issues:
1. Interpretation of professional charges paid for amalgamation as revenue or capital expenditure.
2. Determination of deduction eligibility for contribution towards construction of tenements.

Analysis:

Issue 1:
The first issue pertains to the interpretation of professional charges paid for amalgamation as either revenue or capital expenditure. The assessee-company incurred professional charges towards the amalgamation of another company, claiming it as a revenue expenditure. The Tribunal upheld the assessee's contention, emphasizing that the amalgamation was necessary for the smooth conduct of business. The Tribunal differentiated between acquisition of a capital asset and expenditure for business purposes, relying on the decision in Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52. The Supreme Court concurred with the Tribunal's finding, holding that the expenditure on professional charges for amalgamation was deductible as revenue expenditure under section 10(2)(xv) of the Income-tax Act.

Issue 2:
The second issue involves the eligibility of deduction for a contribution made towards the construction of tenements for the company's workers. The Tribunal found that the expenditure did not create a capital asset for the assessee as the tenements remained the property of the Housing Board. It concluded that the expenditure was incurred to maintain a contented labor force and enhance business efficiency. The Revenue relied on Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900, arguing that providing better housing to workers conferred an enduring benefit akin to capital expenditure. However, the Supreme Court distinguished the case based on the decision in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293, emphasizing that the expenditure was a legitimate business expense. Citing CIT v. T. V. Sundaram Iyengar and Sons Pvt. Ltd. [1990] 186 ITR 276, the Court held that the contribution towards worker housing was revenue expenditure, aligning with the findings of the Tribunal. Consequently, the Court upheld the High Court's decision to reject the application under section 256(2) of the Income-tax Act, dismissing the appeals.