COMMISSIONER OF INCOME-TAX VS CHERAN TRANSPORT CORPORATION LTD., 2001 PTD-MADRAS-HIGH-COURT-INDIA 3646 (2020)

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Interest‑‑‑Nationalisation of transport business‑‑ Interest paid on compensation payable to bus transport operators‑‑‑Supreme Court holding nationalisation valid‑‑‑Interest paid was deductible‑‑‑Indian Income Tax Act, 1961.

(b) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Contribution to Cheran Welfare Trust‑‑‑Is entitled to deduction‑‑‑Indian Income Tax Act, 1961.

(c) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Expenditure on labour welfare‑‑‑Subsidy paid to Cheran House Building Society‑‑‑Allowable as revenue expenditure‑‑‑Indian Income Tax Act, 1961.

Held, (i) that the payments made by the assessee to the Cheran House Building Society were labour welfare expenditure and were allowable as a revenue expenditure.

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

(ii) That the Supreme Court upheld the validity of the Act passed by the Government of Tamil Nadu in acquiring the bus transport undertaking. As a consequence the assessee was liable to pay interest to the individual operators on the compensation payable to them on taking over their business. The liability to pay interest was subsisting from the date of the enactment. Therefore, the interest paid was deductible.

(iii) That the assessee was entitled to deduction of the contribution to the Cheran Welfare Trust in the computation of total income.

Cheran Engineering Corporation Ltd. v. CIT (1999) 238 ITR 892 (Mad.) ref.

C.V. Rajan for the Commissioner.

R. Meenakshisundaram for the Assessee.

JUDGMENT

N.V. BALASUBRAMANIAN, J.‑‑‑ The Revenue being aggrieved by the order of the Income‑tax Appellate Tribunal, sought for a reference and the Appellate Tribunal has stated the case and the following three questions of law relating to the assessee's assessment year 1979‑80 have been referred to us for our consideration:‑‑

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that interest payment of Rs.1,49,379 paid to ex‑service operators of the bus service would qualify for deduction even though the Madras High Court has declared the nationalisation as null and void?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled for deduction of Rs.5 Lakhs being the contribution made to the Cheran Welfare Trust, in the computation of total income?

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal had valid material to hold that the sums paid by way of subsidies to the Cheran House Building Society should be allowed as a Revenue expenditure?"

Insofar as the first question of law that has been referred to us is concerned, the assessee claimed a deduction for a sum of Rs.1,49,379 as interest payable to the individual operators on the compensation payable to them on taking over of the business by the assessee. This Court earlier struck down the Ordinance acquiring the undertaking as being un‑Constitutional. The Income‑tax Officer disallowed the interest payment on the ground that this Court has struck down the provisions of the Act and, therefore, there was no liability to pay interest. At the time when the Tribunal decided the appeal, the Supreme Court has not decided the appeal. Subsequently, on October 31, 1982, the apex Court upheld the validity of the Act passed by the Government of Tamil Nadu in acquiring the bus transport undertaking and overruled the judgment of this Court. The consequence of upholding the validity of the Act, by which the buses were taken over, was that the assessee was liable to pay interest to the individual operators from whom the buses were taken over and it is well‑settled that the decision of the Court of law has fully retrospective effect and the liability to pay interest was subsisting from the date of the enactment. Therefore, the view of the Appellate Tribunal that the assessee was entitled to interest payment of Rs.1,49,379 payable to the ex‑service operators qualified for deduction is sustainable in law and, accordingly, we are of the view that there is no infirmity in the view of the Appellate Tribunal that has been taken.

The second question relates to deduction of a sum of Rs.5 Lakhs paid to the assessee being contribution to the Cheran Welfare Trust. A similar matter in the assessee's own case for, an earlier assessment year came up for consideration before us in Tax Case No.773 of 1985, dated February 24, 1998 (Cheran Engineering Corporation Ltd. v. CIT (1999) 238 ITR 892 (Mad:). We have held that the assessee was entitled to deduction of the contribution made by it to the Cheran Welfare Trust on the ground that it was clarificatory in nature. The Tribunal is of the view that the assessee was entitled to deduction of Rs.5 Lakhs in the computation of the total income. We find no error in the order of the Tribunal.

The third question relates to the sum paid by the assessee as subsidies to the Cheran House Building Society. The payments made by the assessee to the said society are purely labour welfare expenditure and the amount paid being a labour welfare expenditure is deductible as a revenue expenditure. The Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons (P:) Ltd. (1990) 186 ITR 276, has held that the sum paid by way of labour welfare expenditure is a revenue expenditure. We are of the view that there is no error in the view of the Appellate Tribunal in holding that the sum paid as subsidies to the Cheran House Building Society is allowable as revenue expenditure.

Accordingly, we answer the questions of law referred to us in the affirmative and against the Revenue.

M.B.A./559/FC

Order accordingly.