1957 (3) TMI 65 - HC - Income Tax

Business repair expenses for employee residential quarters deemed deductible under Indian Income-tax Act

Jamshedpur Engineering And Machine Manufacturing Co. Ltd. Versus Commissioner of Income-Tax, Bihar & Orissa

The High Court held that the expenditure incurred by the private limited company for repairing residential quarters of its employees was allowable as ... - Issues Involved:1. Whether the expenditure incurred by the assessee for repairing quarters should be allowed as business expenditure under section 10(2)(xv) of the Indian Income-tax Act.Issue-Wise Detailed Analysis:1. Allowability of Expenditure as Business Expenditure under Section 10(2)(xv):Background:The assessee, a private limited company engaged in the manufacture and sale of agricultural implements, constructed residential quarters for its employees. During the assessment years 1949-50 and 1950-51, the company incurred expenses of Rs. 6,005 and Rs. 5,542 respectively for repairs and maintenance of these quarters. The company also received sums of Rs. 5,692 and Rs. 6,268 from employees for conservancy and maintenance charges.Initial Rejections:The Income-tax Officer rejected the company's claim for deducting these expenses from its taxable income under section 10(2)(v) and section 10(2)(xv) of the Income-tax Act, allowing only one-sixth of the rent realized as a deduction under section 9. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.Reframing of Questions:The High Court reframed the questions to focus on whether the expenditure should be allowed as business expenditure under section 10(2)(xv).Arguments and Evidence:- Assessee's Argument: The quarters were built to promote the assessee's business. The Industrial Tribunal's award and other documents demonstrated that housing was essential for the proper performance of the company's business. The memorandum of association and a government letter on the Industrial Housing Programme supported this view.- Key Documents:- Industrial Tribunal Award (16th September 1947): Detailed the conditions and necessity of housing for employees.- Standing Order (22nd October 1947): Addressed housing provisions for employees.- Government Letter (28th February 1950): Discussed the Industrial Housing Programme.- Memorandum of Association (Paragraph 49A): Authorized the company to provide and maintain housing for employees.- Permit Form (Exhibit E): Stipulated that housing was linked to employment and did not create a tenancy.High Court's Analysis:The court found the assessee's submission well-founded, ruling that the case did not fall under section 9 but under section 10(2)(xv). The expenditure was deemed necessary for the business, not in the nature of capital expenditure or personal expenses, and thus deductible.Supporting Precedents:- Russell (Surveyor of Taxes) v. Aberdeen Town and County Bank [1888] 2 Tax Cas. 331: Allowed deduction for premises used for business and residential purposes.- Usher's Wiltshire Brewery Ltd. v. Bruce (Surveyor of Taxes) [1914] 6 Tax Cas 399: Allowed deduction for repairs of premises used in business, even if some benefit accrued to tenants.- British Insulated and Helsby Cables Ltd. v. Atherton [1926] A.C. 203: Emphasized that expenditure incurred for commercial expediency and indirectly facilitating business is deductible.Distinguishing Cases:- Ballygunge Bank Ltd. v. Commissioner of Income-tax, Bengal [1946] 14 I.T.R. 409: Inapplicable as the company's sole business was letting out buildings.- Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266: Inapplicable as the company's sole business was property management.Conclusion:The High Court concluded that the expenditure of Rs. 6,005 and Rs. 5,542 for the repair and maintenance of residential quarters should be allowed as business expenditure under section 10(2)(xv) of the Indian Income-tax Act. The questions of law were answered in favor of the assessee, and the assessee was awarded costs of Rs. 250 for both references.