1973 (5) TMI 18 - HC - Income Tax

(1) Whether amount paid to the workmen as bonus were expenditure laid out wholly and exclusively for the purpose of business ? (2) Whether amount paid towards the legal charges were expenditure laid out wholly and exclusively for the purpose of business ? (3) Whether the assessees are entitled to claim development rebate on railway sidings used by them for transporting their raw materials and finished goods ? In this case the very fact that the Indian Income-tax Rules enumerate railway sidings as coming within the definition of plant and machinery obviates the necessity of examining the question whether it would come within the definition of plant. As has been said already the aforesaid Supreme Court decision makes it clear that it would come within such definition even if it had not been clearly enumerated under rule 8 - petitioner is entitled to claim development rebate on the railway sidings installed by the petitioner for transport of raw materials and finished goods

Issues Involved:

1. Whether the amount of Rs. 79,447 paid to the workmen as bonus during the assessment year 1959-60 was expenditure laid out wholly and exclusively for the purpose of business.
2. Whether the amount of Rs. 47,879 paid towards legal charges during the assessment year 1959-60 was expenditure laid out wholly and exclusively for the purpose of business.
3. Whether the assessee is entitled to claim development rebate on railway sidings used for transporting raw materials and finished goods.

Issue-wise Detailed Analysis:

1. Bonus Payment to Workmen:

The petitioner, a public limited company, claimed a deduction for Rs. 79,447 paid to workmen as bonus for the assessment year 1959-60. Initially, this sum was advanced as a loan during the accounting year 1958-59 due to agitations and go-slow tactics by workmen. To settle the dispute, the managing director decided to treat the loan as a bonus for the year 1957-58. However, in the books of accounts, this payment was recorded as "ex gratia" to avoid creating a precedent. The Tribunal rejected the claim, stating there was no material to show the necessity for such payments and that it was not shown as a bonus in fact.

The court held that the Tribunal's reasoning was contrary to law. It stated that the petitioner could adjust the loan as a bonus and that the nature of the payment as a bonus was not negated by its description as "ex gratia" in the accounts. The court emphasized that it is within the management's purview to decide on such payments to maintain industrial peace. The Tribunal was directed to re-examine whether the conditions prescribed in the proviso to section 10(2)(x) of the Indian Income-tax Act, 1922, were fulfilled to allow the deduction.

2. Legal Expenses:

The petitioner claimed Rs. 47,879 as legal expenses incurred in litigation with S. P. Jain, which affected the company's business. The Tribunal disallowed this amount, considering it a capital expenditure related to the issue of shares. The court, however, found that the litigation was necessary for the business and was ultimately settled in the Supreme Court in favor of the petitioner. The court concluded that the expenditure was laid out wholly and exclusively for the purpose of business under section 10(2)(xv) of the Act and should be allowed.

3. Development Rebate on Railway Sidings:

The petitioner claimed a development rebate of Rs. 1,28,830 on railway sidings used for transporting goods manufactured by the factory. The Tribunal rejected this claim, stating that railway sidings do not form part of the plant or equipment. The court disagreed, citing Rule 8 of the Indian Income-tax Rules, which includes railway sidings under machinery and plant. The court also referenced the Supreme Court decision in Commissioner of Income-tax v. Taj Mahal Hotel, which supported the inclusion of such installations as plant. The court concluded that the petitioner was entitled to the development rebate on the railway sidings.

Conclusion:

The reference was accepted with costs, and the questions were answered as follows:

1. The amount of Rs. 79,447 paid to the workmen during the assessment year 1959-60 was considered a bonus. The Tribunal was directed to re-examine whether the conditions of the proviso to section 10(2)(x) were fulfilled.
2. The amount of Rs. 47,879 paid towards legal charges during the assessment year 1959-60 was expenditure laid out wholly and exclusively for the purpose of business.
3. The petitioner is entitled to claim development rebate on the railway sidings installed for transporting raw materials and finished goods.

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