THE COMMISSIONER OF INCOME TAX, BOMBAY vs. BOMBAY DYEING AND MANUFACTURING CO. LTD.

CIVIL APPEAL No. 593/1978Supreme Court[1996] 3 S.C.R. 6529 February 1996Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, M.K. MUKHERJEE5 pages
AI SummaryDismissed

What were the facts?

The appeals before the Supreme Court were against the Bombay High Court's rejection of an application under Section 256(2) of the Income Tax Act. The revenue sought to refer two questions to the High Court for its opinion. The first question concerned the deductibility of professional charges paid by the assessee company for the amalgamation of another company with it. The second question related to the deductibility of a sum contributed by the assessee to the Maharashtra Housing Board for the construction of tenements for its workers. The Tribunal had ruled in favour of the assessee on both counts. The expenditure for amalgamation was Rs. 10,350, and the contribution to the Housing Board was Rs. 2,25,000.

What did the Supreme Court hold?

The Supreme Court held that the Tribunal was right in both its conclusions. Regarding the first issue, the Court found that since the amalgamation of the two companies, which had complementary businesses, was necessary for the smooth and efficient conduct of the assessee's business, the professional charges paid to solicitors were incurred in the course of carrying on the business and were therefore deductible as revenue expenditure. This was supported by the ratio in Bombay Steam Navigation Company Private Limited v. Commissioner of Income-Tax, Bombay. Concerning the second issue, the Court agreed with the Tribunal that the contribution to the Housing Board did not bring into existence any capital asset for the assessee, as the tenements remained the property of the Housing Board. The Tribunal's finding that there was no obligation on the assessee and that the benefit to workers did not constitute a direct benefit of an enduring nature to the assessee was upheld. The Court found the principles in L.H. Sugar Factory and Oil Mills (P) Ltd. v. Commissioner of Income-Tax, U.P. and Commissioner of Income Tax, Madras v. T.V. Sundaram Iyengar and Sons Private Ltd. more applicable than the principle in Travancore-Cochin Chemicals Ltd. v. Commissioner of Income-Tax, Kerala. Therefore, the expenditure was deductible as revenue expenditure.

What were the issues?

1. Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that professional charges paid by the assessee company to its solicitors for effecting the amalgamation of Nawrosjee Wadia Ginning & Pressing Company with it were of a revenue nature and deductible. - Assessee's contention: The amalgamation was necessary for the smooth functioning of the business, and the legal expenses were revenue expenditure. - Revenue's contention: The amalgamation resulted in the acquisition of another company, which was a capital asset, making the expenses capital in nature. 2. Whether, on the facts and in the circumstances, the Tribunal was justified in law in holding that the assessee was entitled to a deduction for Rs. 2,25,000 contributed to the Maharashtra Housing Board for constructing tenements for its workers. - Assessee's contention: The expenditure was solely for the welfare of employees and constituted legitimate business expenditure. The tenements were not capital assets of the company, and there was no obligation to provide them. - Revenue's contention: The expenditure provided an enduring benefit to the assessee, akin to the principle in Travancore-Cochin Chemicals Ltd. v. Commissioner of Income-Tax, Kerala.

Which sections of the Income-tax Act were involved?

Section 10(2)(xv),Section 256(2)

AI-generated summary — verify with the full judgment below

• t THE COMMISSIONER OF INCOME TAX, BOMBAY A v. BOMBAY DYEING AND MANUFACTURING CO. LTD. FEBRUARY 29, 1996 [B.P. JEEVAN REDDY AND M.K. MUKHERJEE, JJ.] B Income Tax Act, 1922: Section 10(2)(.XV).

Income Tax-Business expenditur~Deduction in computation of in- come-Capital or revenue expenditur~Professional charges paid by assessee C to solicitors for effecting amalgamation of Companies-Claim for deduction as revenue expenditur~Tribunal holding that amalgamation of Companies was necessary for smooth functioning of business-Being expenditure incurred laid out wholly and exclusively for business of assessee it was deductible as revenue expenditurir-field Tribunal was right in its conclusion.

Bombay Steam Navigation Company Pvt. Ltd. v. Commissioner of Income Tax, Bombay, 56 I.T.R. 52, relied on.

State of Madras v. G.J. Coelho, 53 I.T.R. 186, referred to. D Assessee-Contribution made to Housing Bo,ard towards construction E of tenements for the Company's worke,-Assessee ,n9t under obligation to provide tenements-Claim for deduction by assessl!e as Revenue expendi- ture-Claim allowed by Tribunaf-Tribunal holding that expenditure in ques- tion brought into existence no

The order continues below.

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