Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1974-75 - On 31-10-1973, assessee-company decided to increase its subscribed capital by issue of certain ordinary shares and also to create two trusts for benefit of its employees - Each of two trusts received Rs. 500 as initial contribution from assessee - Subsequently assessee decided to issue further shares and to pay another sum of Rs. 86,220 to each of two trusts, which decided on same day to purchase from assessee ordinary shares of value of Rs. 86,220 - Shares were accordingly allotted by assessee to two trusts - Assessee claimed deduction of aforesaid amount - Whether Tribunal having found as a fact that said expenditure incurred by assessee was for purpose of welfare of its employees and that there was a close nexus and an intimate connection between expenditure so incurred and business expediency, aforesaid amount was allowable as deduction under section 37(1) - Held, yes FACTS On 31-10-1973, the assessee-company decided to increase its subscribed capital by issue of certain ordinary shares in order to ensure that 60 per cent of the increased subscribed capital should be in the hands of the Indian nationals. On the same day, the assessee-company created two trusts, one for the benefit of senior officers and the other for the benefit of junior employees, each of which received Rs. 500 as initial contribution from the company. Subsequently, the assessee decided to issue further shares and on the same day resolved to pay a sum of Rs. 86,220 as further contribution to each of the two trusts. After the amounts were paid to the two trusts, they purchased ordinary shares from the assessee and the assessee allotted them shares of the value of Rs. 86,220. For the assessment year 1974-75 the assessee claimed deduction of the amounts of contribution made on the ground that the trusts were created solely for the welfare of its employees. The ITO disallowed the assessee's claim on the ground that the sole purpose of making contribution to the trusts was to enable them to purchase the above equity shares issued by the assessee-company and that the contribution was…

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