1976 (11) TMI 49 - HC - Income Tax

High Court Allows School Building Expenditure Deduction, Disallows Employee Advances

The High Court ruled in favor of the assessee regarding the expenditure on the school building, allowing it as a deduction under section 256(1) of the ... Accounting Year, Business Expenditure Issues involved: Determination of whether certain expenditures are revenue expenses and admissible deductions u/s 256(1) of the Income-tax Act, 1961.Expenditure on construction of school building:The first amount spent on constructing a school building was transferred to 'Labour Welfare Account' after completion and handed over to Udamalpet Municipality for running as a school. The Income-tax Officer treated this as capital expenditure, disallowing it as a deduction. However, the High Court found that the building was not intended to be an asset of the assessee but part of a welfare scheme, exclusively used for employees' children. Therefore, it was not of a capital nature, and the expenditure should be allowed as a deduction.Advances to employees for house construction:The second item was advances made to employees for house construction, later written off to 'Staff welfare account'. The assessee claimed it as a business expenditure, citing a Supreme Court case. However, the High Court differentiated the present case, emphasizing that the advances were intended as loans to employees, not a business expenditure. The write-off on the last day of the accounting year did not make it a deductible expense. The Court held that the assessee was not entitled to a deduction for this amount.Conclusion:The High Court answered the question in favor of the assessee for the amount spent on the school building, allowing it as a deduction. However, for the advances made to employees for house construction, the Court ruled against the assessee, disallowing it as a deduction.