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TMI Blog1983 (8) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the said trust for effectuating the deed of declaration of trust-cum-settlement as per draft placed before the meeting and copy kept on record duly signed by the Chairman for the purpose of identification. The said draft has been shown to the said trustees who have consented to the various conditions, rules and regulations stated therein. Resolved further that consent be and is hereby given for making payment up to Rs. 5 lakhs in the current year to Goetze (India) Ltd. Employees' Welfare Trust, towards corpus. Also resolved that Mr. Harbans Singh Mehta and Sodhi Kartar Singh, directors of the company be and are hereby authorised to execute the above trust deed for and on behalf of the company who are also authorised to affix company's common seal thereon. Further resolved that the completion of the necessary formalities in this behalf including engrossing the document on requisite stamp papers, its execution, registration, etc., be entrusted to counsel and further steps be taken as advised by him." The company wrote a letter dated 31-12-1976 which reads as under and a cheque of Rs. 5,00,000 drawn on Canara Bank, New Delhi, was handed over to the trustees to be held under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les have also been framed as provided in the deed. The beneficiaries are approximately 2,000 employees of the assessee-company. 8. Before the ITO the assessee claimed that the sum of Rs. 5,00,000 should be allowed as business expenditure. Reliance was placed on the judgments in CIT v. New India Assurance Co. Ltd. [1969] 71 ITR 761 (Bom.) and Hindusthan Klockner Switchgear Ltd. v. CIT [1971] 81 ITR 20 (Bom.). According to the ITO, these two judgments were distinguishable on facts. The ITO was of the opinion that as stated in the board of directors' resolution, the sum of Rs. 5,00,000 which was to be paid to the trustees was to form a nucleus of the trust fund and that without this contribution the trust may not have come into existence at all. He further expressed the opinion that by making this payment the assessee secured a benefit of lasting advantage because the assessee would be in a position to secure and retain services of contented staff. He referred to the judgment in Atherton (Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), which, according to him, was applicable to the assessee's case. He also referred to the balance sheets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business may yet be expended wholly and exclusively for the purpose of the trade." Reference was also made to the judgments in CIT v. Nainital Bank Ltd. [1966] 62 ITR 638 (SC) and Morgan (Inspector of Taxes) v. Tate Lyle Ltd. [1954] 26 ITR 195 (HL) wherein the aforesaid principle had been approved. Reference was also made to the judgment in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) wherein it has been held that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. It was reiterated that the assessee's case was covered by the judgments in New India Assurance Co. Ltd.'s case and Hindusthan Klockner Switchgear Ltd.'s case which were referred before the ITO. 10. Reference was also made to the judgments of the Madras High Court in Palani Andavar Mills Ltd. v. CIT [1977] 110 ITR 742 and CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd. [1974] 95 ITR 428. Reference was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xies, coolers, television sets, refrigerators and Rajdoot motor cycles, etc., subject to a maximum of six months' salary of the concerned employee. The loan was repayable in 30 equal monthly instalments. It was submitted that the approximate number of employees, who had received loans/scholarships from the trust whether in workmen cadre and/or management cadre was approximately 700. The statement of scholarships and loans given by the trust was enclosed and it was submitted that the trust has so far given loans to the employees amounting to approximately Rs. 5,65,000. Commenting on the objection of the ITO that the trustees had the discretion to give the amount to any beneficiary, it was submitted that the power was meant to prevent the beneficiaries from making unreasonable claims. For all these reasons it was submitted that the sum of Rs. 5,00,000 should be allowed as a revenue deduction under section 37(1). 12. The Commissioner (Appeals) did not accept the assessee's submissions. He observed that though the sum of Rs. 5,00,000 was given to the trustees irrevocably, the said amount did constitute the nucleus of the trust funds because the employees had made no contribution ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly to facilitate the carrying on of the business may yet be expended wholly and exclusively for the purposes of the trade." This principle has been approved by the Supreme Court in Eastern Investments Ltd.'s case and Chandulal Keshavlal Co.'s case. The judgment in Atherton's case was applied by the House of Lords in Morgan's case. In Shahzada Nand Sons' case it has been held as under : "What is the requirement of commercial expediency must be judged not in the light of the 19th century laissez faire doctrine which regarded man as an economic being concerned only to protect and advance his self-interest but in the context of current socio-economic thinking which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc., a part of it should in all fairness go to the employees . . . ." In Empire Jute Co. Ltd.'s case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpediency out of the bounty of the assessee-company. In Hindusthan Klockner Switchgear Ltd.'s case an employees' welfare fund for the welfare of the employees of the assessee-company was created. A deed of trust was executed, inter alia, under the seal of the company by two of the directors. The company made a contribution of Rs. 25,000 to the fund and a sum of Rs. 581 was voluntarily collected from the employees. The company claimed the said expenditure of Rs. 25,000 as a deduction. The claim was rejected by the authorities and the Appellate Tribunal rejected an appeal holding that the assessee-company's control of the fund was evidenced by its power to nominate the trustees and the chairman who was its own managing director and by the large powers conferred on the chairman by the rules and regulations and that the expenditure of Rs. 25,000 had brought into existence an enduring asset and the expenditure was, therefore, capital expenditure. On a reference, the High Court held that the expenditure of Rs. 25,000 was made for commercial expediency and was not capital expenditure and was, therefore, deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. In India United ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal found that the primary health centre was the property of the Government. The assessee had made the contribution in consideration of the fact that the health centre was located near its factory premises and would provide treatment to its ailing workmen. Under the Employees' State Insurance Act, 1948, the assessee had an obligation to maintain a hospital or meet the expenses on medical treatment of its workers. In view of the overall situation, the Tribunal recorded the finding that the amount contributed was business expenditure. On a reference, the High Court held that the aforesaid amount donated by the assessee for the construction of the primary health centre building was an admissible revenue expenditure. In Belpahar Refractories Ltd.'s case the assessee had paid Rs. 25,000 toA.D.M.Hospitalfor erecting one air-conditioned cabin and Rs. 20,000 toT.M.Hospitalfor providing hospitalisation facilities for the assessee's employees. The ITO and the AAC disallowed the claim of these amounts. The Tribunal accepted the claim for deduction because no capital asset of the assessee had come into existence and the amounts were spent only as a part of the labour welfare expenses. On a ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred by the assessee in organising football and hockey tournaments was an allowable deduction under section 10(2)(xv). In R. B. Narain Singh Sugar Mills (P.) Ltd.'s case, it has been held that the contributions made by the assessee were with a view to improve cultivation of sugarcane which would in turn ensure better yield of sugarcane. These objects, though not directly, at least indirectly facilitated the carrying on of the business by the assessee. In Hindustan Times Ltd.'s case certain amounts were paid to the municipality to lay new cables which were to belong to the municipality on change over from direct current electricity to alternating current. It was held that the expenditure could not be said to be laid out either to acquire an asset or to acquire any advantage of an enduring nature. The expenditure did not constitute capital expenditure but was allowable as business expenditure in computing the assessee's profits. 24. The ratio of the aforesaid judgments of the Supreme Court as well as of different High Courts clearly is that if a particular amount is paid for the welfare of the employees it is allowable as an expenditure incurred wholly and exclusively f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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