Law: Income Tax Act, 1961

Section: 256(2)

Section 37(1) of the Income-tax Act, 1961 - Business Expenditure - Allowability of - Assessment years 1972-73 and 1973-74 - Whether wherever a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, expenditure resulting in a capital asset in hands of a third party is to be taken as revenue expenditure - Held, yes - Assessee incurred expenditure in discharge of its statutory obligation in putting up labourers quarters partly at its own cost - Quarters were constructed at instance of government and ownership of tenements vested in Government - Further, said expenditure was by way of contribution towards welfare of assessee's own labour force as it resulted in provision of residential accommodation for its labourers - Whether expenditure incurred by assessee was a permissible deduction as revenue expenditure - Held, yes FACTS The assessee claimed deduction on account of labour welfare expenses. The ITO found that the amount was spent on cost of construction of labour welfare fund quarters and, therefore, the assesee's claim was rejected. On appeal, the AAC deleted the addition which was upheld by the Tribunal. On reference: HELD The quarters had to be constructed by the assessee at the instance of the State Government and the ownership of the tenements vested in the Government. Therefore, the expenditure did not result in any acquisition of assets by the assessee. That the assessee was not the owner of the quarters was evident from the fact that the assessee, even after meeting part of the cost of construction, was paying rent for the quarters to the State Government. The assessee had to incur this expenditure in discharge of its statutory obligation in putting up labourers' quarters partly at its own cost. In such a situation where the assessee was under a compulsion to incur this cost to enable it to carry on the trade, and the expenditure did not result in the creation of any assets, it was to be said that the expenditure was not on capital account. Wherever a trader, in his capacity as trader, by compulsion of statutory obligation, has to incur an expenditure…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492