The main legal point established in the judgment is that expenditure providing an enduring benefit and being an initial payment to start a scheme is considered capital in nature and not admissible for deduction under the Income-tax Act, 1961.

SABYASACHI MUKHARJI, J.

( 1 ) THE familiar, yet not always easy, question as to whether a particular expenditure is capital or revenue falls for adjudication in this reference under Section 256 (1) of the Income-tax Act, 1961.

( 2 ) THE assessee is the India Tobacco Co. Ltd. , formerly known as the Imperial Tobacco Co. of India Ltd. The relevant assessment year is 1962-63 and the accounting year is the year ending on 31st March, 1962. In the relevant year the assessee had a factory at Monghyr in Bihar. It had acquired a piece of land and had constructed a hospital thereon. But by the time the hospital was ready, the Employees' Insurance Scheme came into operation. The Government of Bihar required the hospital in pursuance of this. Some negotiations thereafter took place between the assessee-company, the Government and the workers' union. Eventually, a memorandum of settlement dated the 12th August, 1961, was arrived at under Section 18 (3) of the Industrial Disputes Act, 1947. The actual terms and contents of the said memorandum of settlement are, however, not available in the records before us. It appears that the assessee-company had gifted to the Government of Bihar the hospital it had constructed together with the land by a deed of gift dated the 29th January, 1962. Clause 8 (d), which was an integral part of the settlement, stipulated that the assessee should give a sum of Rs. 50,000 to the Government for the purpose of purchasing equipment for the workers' hospital built by the assessee when it would be taken over by the Government, The said clause reads as follows ;" Clause 8 (d ). Hospital; It is agreed that the company will pay to the Government of Bihar in the Department of Labour and Employment a sum of Rs. 50,000 (rupees fifty thousand) for the purchase of equipment for the workers' hospital built by the company when it is taken over by the Government. The union agrees and confirms that no disputes, matters of demands of whatsoever nature in respect of the workers' hospital, are outstanding between the union and the company on execution of this memorandum of settlement. "

( 3 ) IT appears, therefore, that the assessee-company had two kinds of employees, those who were governed by the provisions of the Employees' Insurance Scheme, which provided for hospital benefits and also employees who were not covered by the scheme. From the facts recorded by the Tribunal it appears that by making the payment of Rs. 50,000, the employees of the assessee who were not governed by the scheme were entitled to the use of the hospital facilities.

( 4 ) THE assessee claimed the amount of Rs. 50,000 as a deduction on the ground that the expenditure was incurred out of commercial expediency. The Income-tax Officer disallowed the claim on the ground that the assessee had secured an enduring benefit in the shape of concessional charges for hospitalisation of their employees and, therefore, the expenditure in question was capital in nature. Being aggrieved by the said decision of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner allowed the appeal holding that the payment of Rs. 50,000 was for the purpose of the welfare of the assessee's employees and was not a gift or ex gratia payment on account of any extra-commercial considerations. He, therefore, held that the expenditure arose in the course of the company's normal business.

( 5 ) BEING aggrieved by the said decision of the Appellate Assistant Commissioner, the revenue preferred an appeal to the Tribunal. The Tribunal, on consideration of the facts in the light of the provisions of Section 37 (1) of the Income-tax Act, 1961, was satisfied that the expenditure would be admissible as deduction. The Tribunal found that the assessee-company had employees, who were covered by the provisions of the Employees' Insurance Scheme, which provided for hospital benefit, as well as employees who were not so covered by the

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