Law: Income Tax Act, 1961

Section: 37

Income-tax-----Business expenditure---Capital or revenue expenditure---General principles- --Company formulating scheme for providing houses to its employees---Company arranging for purchase of land by its employees---fart of land handed over to Panchayat by vendor---Company incurring expenditure on laying roads and construction of water tanks in land belonging to Panchayat---Land did not belong to the company and no enduring benefit obtained by it---Expenditure not of capital nature--¬Expenditure incurred for welfare of employees---Expenditure incurred for purposes of business and deductible---Indian Income Tax Act, 1961, S.37. In section 37 of the Income Tax Act, :961, the expression used is "for the purpose of the business" which is wider in scope than the expression "for the purpose of earning profits". Its range is wide it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery. It may comprehend many other acts incidental to the carrying on of the business. If an expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce profits, it is revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure. The source or the manner of the payment would then be of no consequence. Unless the very asset, which has been brought into existence belongs to the assessee, it cannot be said that the assessee acquired an enduring advantage for its business. The assessee, a public limited company, formulated a scheme for providing houses to its employees. Land belonging to C was divided into plots and allotted to the employees. The sale-deed in respect of the property allotted to each employee was executed by the owner of the property, namely, C, in favour of each of the. employees. The assessee-company made arrangements for…

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