Revenue expenditure and cash bonus disallowance: earlier precedent and statutory interpretation favoured the assessee.

Amounts claimed as expenditure were held deductible as revenue expenditure because the issue was covered by earlier precedent on identical facts, which had treated the outlay as revenue in nature. Bonus paid in cash to employees was also held outside the scope of the amended disallowance rule under section 40(c)(iii), because the statutory test of convertibility into money did not apply where payment was already made in cash. Both questions were answered in favour of the assessee, and the Revenue's objections failed on each issue.

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Issues: (i) Whether the amounts claimed by the assessee were deductible as revenue expenditure; (ii) whether bonus paid in cash to employees could be disallowed under section 40(c)(iii) of the Income-tax Act, 1961.

Issue (i): Whether the amounts claimed by the assessee were deductible as revenue expenditure.

Analysis: The issue was treated as covered by an earlier decision on identical facts, which had held the expenditure to be revenue in nature and therefore deductible.

Conclusion: The deduction claim was upheld in favour of the assessee.

Issue (ii): Whether bonus paid in cash to employees could be disallowed under section 40(c)(iii) of the Income-tax Act, 1961.

Analysis: The payment was made in cash, and the applicable disallowance provision, as interpreted after the amendment with effect from 1 April 1969, was held not to apply to cash payments because there was no question of convertibility into money where cash was already paid.

Conclusion: No part of the bonus paid in cash could be disallowed, and the issue was decided in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee, and the Revenue failed on the issues decided.

Ratio Decidendi: Cash payments to employees are outside the scope of the post-amendment disallowance provision where the statutory test turns on convertibility into money, and identical earlier precedent governs a revenue-vs-capital characterization of expenditure.

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