Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 10(2)(xv) of the Indian income-tax act, 1922 [corresponding to section 37(1) of the income-tax act, 1961]-Business expenditure-Assessee-company, at request of collector, contributed Rs. 22,332 towards construction of dam and road but long after its construction-Whether allowable as revenue expenditure-Held, no- Assessee-company contributed Rs. 50,000 towards construction of roads around its factory under a development scheme which required sugar factories to contribute one- third of cost of construction of such roads-Whether allowable as revenue expenditure-Held, yes Facts For the assessment year 1956-57, the assessee-company, engaged in the business of manufacture and sale of crystal sugar, at the request of Collector, contributed Rs. 22,332 towards the construction of a dam and a road. It also contributed Rs. 50,000 to the State of U.P. towards the construction of roads around its factory under a sugarcane development scheme, which provided that the State Government, Central Government and the sugar factories would borne one-third each of the cost of construction of such roads. The assessee claimed the aforesaid amounts as deductible expenditure under section 10(2)(xv) of the 1922 Act. The ITO and the AAC rejected the claim on the ground that the expenditure incurred was of capital nature. On further appeal, the Tribunal, by majority, upheld the ITO's order on the grounds, inter alia, that the contributions were made by the assessee as a good citizen just as any other person would and it could not be said that the expenditure was laid out wholly and exclusively for the purpose of the business of the assessee. On reference, the High Court affirmed the decision of the Tribunal. On appeal by the assessee: Held 1. So far as the expenditure of Rs. 22,332 was concerned, it was contributed by the assessee long after the construction of a dam and a road and there was absolutely nothing to show that this contribution had anything to do with the business of the assessee or that the construction of the dam and road was in any way advantageous to the assessees business. The impugned amount was apparently contributed by the assessee without any legal obligation…

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