Law:

Section:

Section 37(1) of Income-tax Act 1961 - Business expenditure - Allowability of - Assessment year 1978-79 - Assessee-firm's claim for deduction of contribution made to welfare trusts created for welfare of its employees was rejected on ground that it was capital expenditure - Whether voluntary payments made by an employer for general welfare and benefit of employees on grounds of commercial expediency are revenue expenditure, deductible under section 37 - Held, yes - Whether such expenditure has nexus with conduct of business and expenditure incurred for maintaining industrial peace and cordial relations with employees is an expenditure for carrying on of business - Held, yes - Whether since there was no dispute about bona fide in creation of trusts or utilisation of funds contributed by assessee to trusts, Tribunal was justified in law in holding that contribution to three welfare trusts created by assessee was an allowable deduction under section 37 - Held, yes FACTS During the accounting year relevant to the assessment year 1978-79, the assessee-firm created three welfare trusts for the welfare of its employees of various grades and contributed certain amounts to the said three trusts. The assessee claimed the said contribution as deduction in computing the total income. The Assessing Officer rejected the contention of the assessee and held that the contribution to the fund was capital expenditure and, therefore, not allowable under section 37. The assessee went in appeal before the Commissioner (Appeals) who held that the claim was admissible as deduction. On appeal filed by the revenue, the Tribunal agreed with the view taken by the Commissioner (Appeals) and held that the contribution given to the trusts was an admissible deduction. On reference : HELD In the instant case, the undisputed facts were that the trusts were bona fide created for the welfare of the employees of the assessee-firm. It was the case of the assessee-firm that it was carrying on business of construction and structural engineers for several years and in the course of carrying out the business, the assessee had employed several persons as employees, who had given their unstinted and…

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