Employees' welfare fund contribution treated as revenue expenditure when made for commercial expediency, not as capital outlay.

A company's contribution to an employees' welfare fund was treated as deductible revenue expenditure rather than capital expenditure because it was made for commercial expediency and not to acquire a capital asset or enduring benefit in the capital sense. The fund was intended for employee welfare purposes, including medical aid, education grants, funeral expenses, housing facilities, and similar benefits, and the company had no pre-existing contractual liability to make the contribution. On those facts, the English enduring-advantage principle was held inapplicable, and the welfare-fund contribution was allowable as revenue expenditure under the Indian Income-tax Act, 1922.

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Issues: Whether the assessee-company's contribution of Rs. 25,000 to an employees' welfare fund was capital expenditure or deductible revenue expenditure under the Indian Income-tax Act, 1922.

Analysis: The contribution was made to create and support a welfare fund for the employees, the fund being intended to meet welfare objects such as medical aid, education grants, funeral expenses, housing facilities, and other benefits. The corpus itself could be applied to those purposes, and the company had no pre-existing contractual liability to incur such expenditure. The facts were held to be materially similar to an earlier decision where a comparable contribution for employees' welfare was treated as expenditure incurred for commercial expediency and not as a capital outlay bringing into existence an enduring asset. The principle in the cited English authority on enduring advantage was found inapplicable on these facts.

Conclusion: The contribution was not capital expenditure; it was deductible revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue and the assessee succeeded on the deductibility of the welfare-fund contribution.

Ratio Decidendi: A contribution made for employees' welfare, without discharging any existing liability and without creating a capital asset or enduring benefit in the capital sense, is allowable as revenue expenditure if incurred for commercial expediency.

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