TaxTMI 
TaxTMI 
2002 (12) TMI 31
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.... section 37 of the Income-tax Act, 1961 in computing the total income of the assessee for the assessment year 1978-79?" The relevant facts are that the assessee is a registered firm having seven partners. The assessee/firm is carrying on the business of construction and structural engineers. For the assessment year 1978-79, the assessee filed return of income declaring total income of Rs. 37,59,610. During the accounting year relevant to the assessment year 1978-79, the assessee had created three welfare trusts for the welfare of its employees of various grades and had contributed the following amounts to the said three trusts: ------------------------------------------------------------ &n....
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.... contribution given to the trusts is an admissible deduction. Hence, this reference at the instance of the Revenue. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Revenue, contended that in the assessment year 1978-79 the assessee had earned huge profits and in order to reduce the incidence of taxation, the assessee had diverted the profits by creating welfare trusts. Referring to the trust deed set out at page 43 of the paper book, Mr. Desai submitted that the main object of the trust was, inter alia to acquire by purchase or otherwise, to take on hire and to run and maintain lodging accommodation and holiday homes and render incidental services like provision of food and services etc., at hill stations or other places ....
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....e measure towards the employees, the same were allowable as revenue expenditure. Mr. Inamdar further submitted that under clause 50 of the trust deed, the trust was to remain irrevocable for all time and the assessee had released, relinquished and surrendered rights, if any, reserved by it; that the trusts were duly registered under the Public Trust Act and the affairs of the trusts were under the control of the Charity Commissioner; that the trusts were under the legal obligation to spend the amount for the welfare of the employees; that nobody had doubted the genuineness of the trusts; that the employees could file suits against the trusts, if the funds were not utilised for the benefit of the employees. Mr. Inamdar further submitted tha....
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....ationship the assessee has created these trusts. The health of a firm or a company depends upon the healthy relationship between the employer and the employees. In a year in which the firm has earned huge profits, if the firm seeks to create welfare trusts for employees, bona fide, for the welfare of its employees and executives, it cannot be said that the assessee is diverting income to reduce the tax liability. It was in fact sharing the income with employees. It is pertinent to note that in the earlier years it was allowed as expenditure. Moreover, in view of socio-economic changes labour welfare can be treated by the assessee as a liability in its accounts. A perusal of the trust deeds clearly shows that the assessee could not derive an....