Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether amount paid to a trust formed by assessee-company for affording higher education to needy children of its employees and expenditure incurred on forming aforesaid trust could be treated as business expenditure - Held, yes Facts In the relevant assessment year, the assessee-company claimed deduc- tion under section 37(1) in respect of the amount paid to a trust formed by it for affording higher education to the needy children of its employees. It also claimed deduction of the expenditure incurred for forming the said trust. The ITO disallowed the claim on the ground that the expenditure incurred was unrelated to the business of the assessee. However, on appeal the Tribunal allowed the assessee's claim. On reference: Held In the instant case since the predominant object of the trust was to provide benefit to the children of the needy employees who were deserving and meritorious, it must thus be said that the expenditure was laid out for the ultimate business purpose of the assessee. By providing for the said object, the assessee would be keeping its employees, particularly the needy ones, happy and more contented, which was bound to enhance their productivity and was also bound to improve their relations with the employer all of which were to the good of the assessee. It was true that the assessee was under no obligation to create such a trust. But it is well settled by now that all the measures taken by the assessee, though voluntary, i.e., not obligatory, which are ultimately designed to further the objects and purposes of the assessee could be treated as business expenditure, so long as the connection between the expenditure and the object is real and not remote and illusory. In the instant case there was a nexus between the expenditure and the objects and purpose of the assessee and it could not be said to be illusory or remote. The Tribunal was, therefore, justified in allowing the assessee's claim. It was also contended that expenditure incurred to form the trust was a capital expenditure inasmuch as by creating the trust the assessee has acquired a capital asset of…

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