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 1958-59 - Assessee purchased tea estate in pursuance of agreement - Said agreement provided that all dues that might be determined after date of sale to be payable to labour and other staff whether in respect of service under vendor or purchaser would be paid by purchaser - Assessee accordingly paid bonus to labourers of estate for their services under vendor and claimed it as deductible under section 10(2)(xv) of 1922 Act - Whether undertaking in pursuance of which assessee made payment in question was part and parcel of consideration for sale and, therefore, said expenditure was in nature of capital expenditure and as such was not deductible under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee purchased a tea estate from 'P' in pursuance of an agreement. The agreement provided that all dues determined upto the time the sale took effect, as legally due to labour, staff and superintendent in respect of service uptil then (including bonus) would be borne by the vendor; and all dues (including any extra bonus or other benefits or additional benefits) that might be determined after the time the sale took effect to be payable to labour, staff and the superintendent whether in respect of service under the vendor or in respect of service under the purchaser, would be paid by the purchaser. A certain sum was paid by the assessee during the accounting period to the labourers of the estate as bonus for their services under the vendor in pursuance of the said agreement. The said amount was claimed as deductible under section 10(2)(xv) of 1922 Act the Tribunal held that the said amount of bonus paid by the assessee represented capital expenditure. On reference: HELD An initial outlay for the initiation of a business is normally treated as an expenditure in the nature of a capital expenditure, and there was no reason to depart from that rule in the instant case. The undertaking embodied in the agreement and in pursuance of which the assessee made the payment was apparently part and parcel…

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