1987 (3) TMI 33 - HC - Income Tax

High Court allows deduction for employee trust expenses as business expenditure promoting welfare

The High Court ruled in favor of the assessee regarding the deduction of expenses for creating a trust for employees' children under section 37(1) of the ... Borewell, Business Expenditure, Depreciation On Borewells, Expenditure On Employees' Children Issues involved: Interpretation of deductions u/s 37(1) of the Income-tax Act, allowance of expenditure for business purposes, and depreciation on specific expenditures.Deduction u/s 37(1) - Trust Expenditure:The case involved the deduction of expenses incurred by the assessee-company for creating a trust for the welfare of employees' children. The Income-tax Officer initially disallowed the claim, stating it was unrelated to the business and extraneous to its requirements. However, the Tribunal upheld the deduction, emphasizing that the provision made for higher education of employees' children aimed at promoting general welfare, thus qualifying as a business expenditure. The High Court agreed with the Tribunal's view, citing precedents where voluntary expenditures furthering business interests were allowed as deductions.Capital vs. Revenue Expenditure - Trust Creation:The Revenue contended that the trust expenditure constituted a capital outlay, considering it as an enduring asset acquired by the assessee. However, the High Court disagreed, noting that the trust, once created, was no longer under the assessee's control and the income thereof was to be spent for specified purposes. Drawing a distinction from a referenced case, where a capital asset continued to benefit the assessee, the court held that the trust in question did not confer ongoing benefits to the assessee, thus not qualifying as a capital asset. Consequently, the court ruled in favor of the assessee regarding the nature of the expenditure.Depreciation on Specific Expenditures:The third issue pertained to the allowance of depreciation on bore wells and payment of sales tax on a filtration plant. Both counsels agreed that previous decisions favored the assessee on this matter. Citing established precedents, the High Court answered this question in favor of the assessee, aligning with previous judgments that ruled in favor of allowing depreciation on such expenditures.The judgment concluded by answering all three questions in favor of the assessee, emphasizing the alignment with previous decisions and the interpretation of relevant legal principles.