(a) Income‑tax‑‑‑

‑‑‑ Business expenditure ‑‑‑Contribution to death relief fund ‑‑‑Contribution by assessee to employees housing society for construction of roads ‑‑‑Labour welfare measure ‑‑Allowable as revenue expenditure.

The assessee made a contribution to the Death Relief Fund, as the employer's contribution to match the contribution made by the workmen to the said fund, in accordance with an agreement with its employees, dated May 14, 1976. It also made a contribution to the employees housing society for construction of roads. These were disallowed by the Assessing Officer but were allowed by the Commissioner of Income tax (Appeals), whose decision was upheld by the Appellate Tribunal. On a reference :

Held, (i) that an industry cannot function efficiently, if it cannot maintain a work force which is reasonably content and for whose welfare the employer evinces concern. Death is inevitable, and the steps taken by the employer in this case, which were only minimal, to alleviate the suffering of the family immediately after the death, was clearly an expenditure, which was warranted. It is not necessary that every item of expenditure incurred by the assessee should have been incurred as consequence of a statutory obligation, before it can qualify as a legitimate item of expenditure for the purpose of computation of income. Hence, the contribution made by the assessee to the Death Relief Fund was a legitimate item of expenditure of revenues character.

(ii) that the contribution made by the assessee to the employees housing society for construction of roads, was an item of welfare expenditure which was legitimate and had rightly been allowed by the Tribunal.

CIT v. T.V. Sundaram Iyengar and Sons (P.) Ltd. (1990) 186 ITR 276 (SC) fol.

Income-tax-----

-----Depreciation---- Higher rate of depreciation allowance for machinery that with corrosive chemicals claimed‑‑‑Matter remanded to Appellate.

On the question of the assessee's claim for depreciation at a higher rate, the High Court directed the Tribunal to verify as to whether the chemicals used in the manufacture of sugar are corrosive, and whether the items of machinery, if any, came into contact with the corrosive chemicals, and thereafter, allow higher rate of depreciation to the extent warranted.

CIT v. E.I.D. Parry Ltd. (1997) 227 ITR 373 (Mad.) fol.

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

R. JAYASIMHA BABU, J.‑‑‑The questions referred to us at the instance of the Revenue arising out of the assessment of the respondent for the assessment year 1977‑78:

"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding and had valid materials to hold that the provision made by the assessee towards contribution to Death Relief Fund and also the contribution made by it to the employees housing society for constructing the roads should be treated as admissible deductions?

(2)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee is entitled to depreciation at the higher rate in respect of plant and machinery that come into contact with corrosive chemicals?"

As regards the contribution made by the assessee to the Death Relief Fund, it has been stated in the order of the Commissioner of Income‑tax (Appeals) to whom the assessee had carried an appeal against the order of assessment that it was admitted that ‑the sum of Rs.5,192 had been paid by the company into the Death Relief Fund which was set up under an agreement between the company and its employees, dated May 14, 1976. To that fund, the workers who were also required to contribute, the employer's contribution was to match the contribution made by the workmen. The claim made for regarding the amount as an item of expenditure has been disallowed by the Income‑tax Officer on the ground that the employer had no statutory obligation to contribute to that fund. That view of the Income‑tax Officer was extraordinarily narrow, completely ignoring the realities of the case. An industry cannot function efficiently, if it cannot maintain a work force which is reasonably content and for whose welfare the employer evinces concern. Death is inevitable, and the steps taken by the employer in this case, which is only minimal, to alleviate the suffering of the family immediately after the death, was clearly an expenditure, which was warranted, and which ought to have been allowed. It is not necessary that every item of expenditure incurred by the assessee should have been incurred as a consequence of a statutory obligation, before it can qualify as a legitimate item of expenditure for the purpose of computation of income. The Commissioner of Income‑tax rightly allowed that claim, and the same has been again rightly been upheld by the Tribunal. Our answer to the first question, therefore, is that the contribution made by the assessee to the Death Relief Fund is a legitimate item of expenditure and is an item of the expenditure of revenue character.

As regards the second part of the first question, viz., contribution mane by it to the employees housing society for construction of roads, this again is an item of welfare expenditure which was perfectly legitimate. The genuineness of the expenditure had not been doubted. Providing assistance to employees for enabling them to acquire houses of their own or for forming a lay out, in which the employees may build houses is a legitimate welfare expenditure and has rightly been allowed by the Commissioner and the Tribunal. The Supreme Court in the case of CIT v. T. V. Sundaram Iyengar and Sons (P.) Ltd. (1990) 186 ITR 276, in a brief order, upheld such an expenditure by an employer. The Court noticed that the assessee had only contributed a portion of the construction costs for the employees and that was a subsidised welfare scheme. We are, therefore; of the view that the contribution made by the employer to the employees housing society for construction of roads is an admissible deduction.

The second question concerns the extent to which the depreciation is to be allowed on the plant and machinery that comes into contact with corrosive chemicals in the sugar factory of the respondent. The respondent runs a sugar mill and it had claimed that a higher rate of depreciation should be allowed as the machinery installed in the sugar factory comes into contact with corrosive chemicals. Similar claims had been made by the assessee for earlier assessment years and had been disallowed by the Revenue, but, had been allowed by the Tribunal. This Court considered the claim of the assessee in relation to an earlier assessment year in the case of CIT v. E.I.D. Parry Ltd, (1997) 227 ITR 373. The Court found that the list showing the chemicals used in the manufacture of sugar to support the assessee's contention that those chemicals had a corrosive effect on machinery, and that the machinery came into contact with those chemicals was not produced by the assessee before this Court, and it was also not made known as to what are the items of machinery, which came into contact with the corrosive chemicals. In the absence of such particulars, the Court directed the Tribunal to verify this aspect and allow the higher depreciation, if the machinery used by the assessee for manufacturing sugar did in fact come into contact with corrosive chemicals.

In this case also, we adopt the same course and direct the Tribunal to verify as to whether the chemicals used in the manufacture of sugar are corrosive, and the items of machinery, if any, that came into contact with the corrosive chemicals, and thereafter, allow higher rate of depreciation to the extent warranted.

Parties to bear their respective costs.

M.B.A./320/FCOrder accordingly