1977 (8) TMI 19 - HC - Income Tax

High Court: Satyanarayan Mahapooja expenses not deductible under Income-tax Act

The High Court of BOMBAY ruled that expenses incurred on Satyanarayan Mahapooja by an assessee-company for the assessment years 1957-58 and 1958-59 were ... Capital Receipt, Revenue Receipt Issues Involved: Determination of whether expenses incurred on Satyanarayan Mahapooja are allowable deductions u/s 10(2)(xv) of the Indian Income-tax Act, 1922 for the assessment years 1957-58 and 1958-59.Summary:The High Court of BOMBAY was tasked with deciding whether expenses of Rs. 5,902 and Rs. 6,996 incurred by an assessee-company on Satyanarayan Mahapooja for the assessment years 1957-58 and 1958-59 could be considered allowable deductions u/s 10(2)(xv) of the Indian Income-tax Act, 1922.The assessee, a limited company engaged in the business of sugar manufacturing and sales, claimed the expenses as allowable deductions under the specified section. However, both the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected the claim, stating that the expenses were not incurred wholly or exclusively for the business of the company. The matter was then taken to the Tribunal, where it was explained that the expenses were for the welfare of laborers to ensure their happiness and continued work for the company. Despite this explanation, the Tribunal upheld the disallowance, leading to the reference to the High Court for determination.During the proceedings, the assessee's representative argued that the expenses were akin to entertainment expenses aimed at maintaining good relations with laborers for future business purposes. Citing a decision of the Gujarat High Court, it was contended that the expenses should be considered allowable deductions.However, the High Court rejected this argument, emphasizing that the expenses were not solely for business purposes. It was noted that there was insufficient evidence to show the exact allocation of expenses for feeding laborers and that the wages and bonuses paid to the laborers were sufficient to maintain their goodwill. The Court also highlighted that the expenses were not classified as labor welfare expenses in the balance sheet, indicating a lack of intent to treat them as such.In contrast to the Gujarat High Court decision cited, which involved expenses for establishing a good image and maintaining relations with collaborators, the expenses in this case were for annual dinners for laborers. The Court concluded that these expenses were not necessary for the business and were not dictated by commercial or business expediency. Therefore, the expenses were not allowable deductions u/s 10(2)(xv) of the Act.Consequently, the question was answered in the negative, ruling against the assessee, who was directed to pay the costs of the reference to the department.