1981 (12) TMI 63 - AT - Income Tax

Summary

Issues:
- Disallowance of medical aid payment as a deduction by the assessee-company for commercial expediency.

Analysis:
The case involved an appeal by a private limited company, engaged in the publication of books, against the disallowance of Rs. 10,000 paid towards medical aid to one of its writers. The company argued that the payment was essential for its business due to the significant contributions of the writer to the company's success. The writer's works had been instrumental in boosting the company's sales, and his health directly impacted the company's profitability. The Income Tax Officer (ITO) had viewed the payment as charity or donation, disallowing the deduction. The Commissioner (Appeals) upheld this decision, stating that the payment lacked contractual obligation or commercial expediency, deeming it voluntary and non-deductible. The company then appealed to the ITAT.

The ITAT, after hearing both parties, ruled in favor of the assessee-company. It emphasized that the payment was not merely charity but made for commercial expediency, considering the writer's crucial role in the company's success. The writer's recovery led to the creation of another profitable novel for the company. The ITAT highlighted the author-publisher relationship between the parties, stating that the payment was not to a stranger but to a key contributor to the company's profits. It noted that maintaining the writer's health was in the company's best interest to continue benefiting from his works. The tribunal concluded that the payment was made to ensure the writer's well-being for future business gains, establishing a commercial expediency basis for the deduction, contrary to the lower authorities' views.

In summary, the ITAT allowed the appeal, overturning the disallowance of the medical aid payment as a deduction by the assessee-company. The decision emphasized the commercial expediency of the payment, highlighting the author's integral role in the company's success and the necessity of ensuring his welfare for continued profitability.