Law:

Section:

Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of – Assessment year 1962-63 – Assessee constructed a hospital and gifted same to Government subsequently, it paid an amount to Government for purchase of equipments for hospital and by said payment it secured hospital facilities for its workers who were not covered by employees insurance scheme – Whether notwithstanding fact that expenditure in question was incurred for benefit of workers and was for commercial purposes, it secured to assessee company enduring benefit or privilege of having its workers treated at concessional rate or free and thus getting rid of obligation to make recurring annual expenses for treatment of its workers - Held, yes – Whether, therefore, expenditure in question as capital expenditure not admissible for deduction under section 37(1) – Held, yes FACTS The assessee company acquired a piece of land and had constructed a hospital thereon. But by the time the hospital was ready, the Employees' Insurance Scheme came into operation. The State Government required the hospital in pursuance of that scheme. Some negotiations thereafter took place between the assessee-company, the Government and the workers' union. Eventually, a memorandum of settlement was arrived at . The assessee-company gifted to the State Government the hospital it had constructed together with the land by a deed of gift. The assessee also paid a sum to the Government for the purpose of purchasing equipment for the workers' hospital and by making the said payment the employees of the assessee who were not governed by the scheme were entitled to the use of the hospital facilities. The assessee claimed the said amount as a deduction on the ground that the expenditure was incurred out of commercial expediency. The ITO disallowed the claim on the ground that the assessee had secured an enduring benefit in the shape of concessional charges for hospitalisation of their employees and, therefore, the expenditure in question was capital in nature. The AAC allowed the appeal. The Tribunal held that the expenditure would be admissible as deduction. On reference : HELD In the instant case, it was…

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