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 1961-62 - Assessee had entered into an agreement to sell vehicles manufactured by Telco, and for purpose of ensuring compliance with agreement requiring assessee to maintain a staff of trained personnel, it secured training of its personnel from Telco and made payment, therefore to it - Amount so received by Telco was intended to meet cost of construction of hostel and hostel was to be Telco's property - Whether payment made by assessee to Telco was payment was wholly and exclusively for purpose of its business and thus, should be allowed as deduction under section 10(2)(xv) of the 1922 Act - Held, yes FACTS The assessee carried on business as a dealer in motor vehicles. During the relevant period it was a dealer of Telco, under an agreement with that company, for the sale of Mercedes Benz trucks. The agreement required the assessee to maintain at its own expense an organization for the sale of vehicles, providing for maintenance of show rooms, service centers, repair shops, etc. and an adequate staff of trained salesman and a staff of trained technical service personnel. According to the agreement, the training was actually imparted by Telco which charged the assessee on that account. Under the training scheme, Telco proposed to build a hostel for the apprentices and to recover the entire cost of the hostel from its several dealers. The assessee paid Telco certain amount during the relevant accounting year and claimed that amount was a deduction from its assessable profits for the assessment year 1961-62. The ITO was of the view that the payment was made as the assessee's contribution towards the construction of the hostel, that the hostel would be the property of Telco and that, therefore, it was not a business expenditure. Accordingly, he rejected the assessee's claim. The AAC allowed the assessee's claim on the ground that although the said amount was a contribution towards the construction of the hostel it was not an expense of a capital nature but was a revenue expense incurred in…

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