Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1956-57 - Assessee, under a statutory obligation, made contributions to cane development council set up by State Government for development of roads between various sugarcane producing centers and sugar mills - Apparent object and purpose of such contributions was to facilitate transportation of sugarcane to assessee's factory - Apart from element of compulsion, roads constructed and developed were not assessee's property nor was it revenue's case that entire cost of development of those roads was defrayed by assessee - Whether expenditure in question was incurred for running business or working with a view to produce profits without assessee getting any advantage of an enduring benefit to itself - Held, yes - Whether expenditure was incurred by assessee for reasons of commercial expediency apart from statutory compulsion, and in absence of any finding that roads were to be altogether newly made and that assessee would get an enduring benefit from these roads, expenditure in question was to be allowed as an admissible deduction - Held, yes FACTS During the assessment year 1956-57, the assessee-company carrying on the business of manufacture and sale of sugar, paid certain sums under statutory obligation to the cane development council set up by the State Government by way of contribution for road development between the various sugarcane producing centers and the sugar factories of the assessee. The revenue authorities held that these amounts constituted capital expenditure and could not be allowed as an admissible deduction. On second appeal, the Tribunal upheld the order of the revenue authorities. On reference, the High Court held that the aforesaid expenditure could not be regarded as revenue expenditure. On appeal before the Supreme Court : HELD In the instant case, apart from the element of compulsion, the roads which were constructed and developed were not the property of the assessee nor was it the case of the revenue that the entire cost of development of those roads was defrayed by…

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