TaxTMI 
TaxTMI 
TaxTMI 
1973 (5) TMI 18
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....ay one month's wages as bonus for the year 1957-58, and issued an order that the said loan, equal to one month's wages already paid to the workmen, should be adjusted as bonus for the year 1957-58. Bonus was actually provided in the accounts for the year 1957-58, but the same was written back during the next year 1958-59, and the said payment of bonus amounting to Rs. 79,447 was charged in the accounts under the head " ex gratia " in order to obviate a possible contention of the workmen of a vested right or precedent. For the assessment year 1959-60, the petitioner claimed a deduction of Rs. 68,186 as legal expenses. Out of that sum, the Income-tax Officer disallowed a sum of Rs. 61,490 which includes a sum of Rs. 47,879 spent by the petitioner towards legal expenses on litigation with one S. P. Jain. The petitioner was in urgent need of money with a view to release certain bill of lading. In that connection, the petitioner floated new share capital of about thirty-nine lakhs of rupees and proposed to allot certain shares. When the allotment was about to be made, one group of shareholders headed by S. P. Jain brought a suit against the petitioner and the directors of the petitione....
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.... workmen and management. The managing director, therefore, thought that it was in the interest of the company to treat this loan as payment by way of bonus and settle the dispute. Accordingly, he issued an office order that this loan should be adjusted towards payment of bonus and it was done so. But, in the books of accounts, in order to obviate possible contention of a vested right or a precedent, the term 'ex gratia' was used. " In paragraph 4 of its order the Tribunal records its own conclusion thus : " We have understood the case of the assessee, but we cannot accept this contention that the claim is admissible. There is no material on record to show that there was necessity for making the payments as stated. Nor is it shown that it is bonus in fact. It is one of those types of payments which are made by persons in authority to keep one group satisfied but unless it is shown that the payment was made for business necessity or commercial expediency it cannot be allowed. No interference. " Before examining the correctness of the Tribunal's conclusion in paragraph 4 of its order, it is necessary to state that this allowance is claimed under section 10(2)(x) of the Indian Incom....
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....r production, even though bonus had not been statutorily prescribed. It is not for the income-tax department to control the management's conduct in paying bonus. It is, however, open to the department to reject the same if the conditions prescribed in the proviso had not been fulfilled. Rs. 79,447 were initially advanced to workmen on October 17, 1958. It was quite competent for the managing director to issue an order on September 1, 1959, saying that the advance would be treated as bonus. The fact that in the books of account this payment was described as " ex gratia " payment, does not, in any manner, affect the nature and character of the adjustment being termed as " bonus ". At the material time, bonus had not been statutorily prescribed. In the books of account, the management had to describe the bonus as an " ex gratia " payment to see that the workmen for the subsequent years do not claim a right on the basis of an entry that it was a " bonus ". The word " ex gratia " means " act of grace ". As " bonus " had not been statutorily prescribed, the management was of opinion that the payment was not compulsory under any statute and as it was paid to keep the workers contented, t....
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.... whether allowance should be given to such a claim under section 10(2)(xv) of the Act which runs thus : "S. 10, (2) Such profits or gains shall be computed after making the following allowances, namely :-...... (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. " As has been said already, a bare perusal of the aforesaid decisions would show that the litigation, which was ultimately settled in the Supreme Court, involved an expenditure laid out or expended wholly and exclusively for the purpose of the business of the petitioner. The allowance of the aforesaid amount must, therefore, be given under this head. In paragraphs 5 and 6 of the appellate order, the Tribunal dealt with this part of the case. We have no difficulty in observing that the Tribunal misconceived the scope of the litigation, it did not refer to the aforesaid decisions and was wrong in observing that the expenditure was incurred in connection with the issue of ....
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.... to the assessee : Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant. " It is to be noted that the income-tax department did not record any finding that the conditions prescribed in the proviso have not been satisfied ; in other words, the assessee furnished particulars prescribed for the purpose of clause (vi). The question for consideration is whether the railway sidings constructed by the petitioner constitute machinery or plant which has been installed and which is wholly used for the purpose of business carried on by the petitioner. The petitioner's case is that the railway sidings are used for the purpose of transport of goods manufactured by the factory. There is no rebutting evidence. The petitioner's case is also in consonance with the normal purpose of the business, and the railway sidings are essential for transport of goods. Rule 8 of the Indian Income-tax Rules made under section 59 of the Act runs thus : " 8. The allowance under section 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or....