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1980 Supreme(P&H) 397
PUNJAB & HARYANA HIGH COURT
B.S.Dhillon and M.R.Sharma JJ.
Atlas Cycle Industries Ltd
Versus
Commissioner Of Income-tax
of,
Income-tax Reference No. 139 of 1976,
Decided On : OCTOBER 28, 1980
Expenditure incurred by an assessee for the welfare of its employees, such as the construction of a temple or a grant to a temple management committee, is deductible from its taxable income.
Headnote:
INCOME TAX - Depreciation - Temple constructed by assessee for benefit of employees - Whether depreciation allowable - Expenditure on grant to temple management committee - Whether deductible - Expenditure on monsoon gift scheme - Whether allowable.
Fact of the Case:
The assessee, a company manufacturing cycles and spare parts, constructed a temple inside its factory premises primarily for the benefit of its employees. The assessee claimed depreciation on the temple building and also claimed a deduction for the expenditure incurred on the grant to the temple management committee and on a monsoon gift scheme. The ITO and the AAC disallowed the claims, and the Tribunal upheld the disallowance.
Finding of the Court:
The court held that the assessee was entitled to claim depreciation on the temple building as it was a recreation center for its employees and was constructed in the interest of industrial peace, which advanced the interests of its business. The court also held that the expenditure on the grant to the temple management committee was deductible as it was incurred for the welfare of the employees. However, the court held that the expenditure on the monsoon gift scheme was not deductible as it was not incurred in the previous year.
Issues: 1. Whether depreciation is allowable on a temple constructed by the assessee for the benefit of its employees? 2. Whether expenditure on a grant to a temple management committee is deductible? 3. Whether expenditure on a monsoon gift scheme is deductible?
Ratio Decidendi: 1. The court held that depreciation is allowable on a temple constructed by the assessee for the benefit of its employees as it is a recreation center for the employees and is constructed in the interest of industrial peace, which advances the interests of the business. 2. The court held that expenditure on a grant to a temple management committee is deductible as it is incurred for the welfare of the employees. 3. The court held that expenditure on a monsoon gift scheme is not deductible as it is not incurred in the previous year.
Final Decision: The court answered the first two questions in the negative, in favor of the assessee and against the revenue, and the third question in the affirmative, in favor of the revenue and against the assessee.
, J.
1. The assessee is a company deriving income from manufacture of cycles and spare parts. The board of directors of the assessee-company passed a resolution on February 12, 1968, which reads as under : "resolved that further expenditure up to Rs. two lakhs on the construction of the temple being built primarily and directly for the benefit of the employees of the company, beyond the already sanctioned amount of Rs. one lakh, be and is hereby sanctioned, the total expenditure on temple not to exceed Rs.3 lakhs in all. "
2. The cost of the temple which was constructed during the assessment year 1970-71 came to Rs.3,01,375. This temple had been constructed inside the factory premises of the assessee-company, but one road to the temple also opened on the municipal road. The assessee put forth a claim before the ITO that the temple had been primarily built for the benefit of the employees of the company and it was a business asset entitled to a depreciation of Rs.15,053 for the relevant assessment year. Thisconten-tion was negatived by the ITO. The assessee went up in appeal. The AAC negatived the arguments raised on behalf of the assessee on this point with these observations : " The building of Ram Mandir is neither covered under the definition of assets on which normal depreciation is allowable, as it is not used for business, nor is it covered under the special cases in which an initial depreciation at 20% is allowed under Sec.32 (1) (iv ). The appellant has argued for the allowance of depreciation on the ground that the temple building is for the welfare of the employees and that on account of commercial expediency the same should be allowable. However, since the Act has explicitly stated the nature of buildings, which will be admissible for the purpose of depreciation under Sec.32 (1) (iv) and has specifically not included a temple or a place of worship, it is clear that it is not the policy of the Government to allow concession to the buildings, which are used for religious worship. It is not denied that the temple has been erected for the purpose of labour and it is a measure to keep them happy. But since this particular item has always been explicitly excluded either for the purpose of depreciation or for the purpose of relief under Sec.80g, it is clear that the Government is not interested in making concession in revenue where the expenditure has been incurred on any type of religion. While enumerating deductions admissible in respect of donations to certain funds, charitable institutions, etc. , under Sec.80g, it is specifically stated that only those sums will be eligible for relief, which have been paid as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place as is notified by the Central Govt. in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. Thus, for the purposes of Sec.80g, any ordinary temple, mosque, gurdwara or church has been excluded and only specific places of historic importance have been included. In view of the clear intention of the Government in this matter the ground of commercial expediency taken by the appellant will not be relevant. Therefore, the depreciation claimed on the temple building amounting to Rs.15,053 will not be admissible. On the same reasoning, the expenditure incurred for the maintenance of temple amounting to Rs.5,500 will not be admissible. The action of the ITO in adding back this amount is confirmed. "
3. The assessee filed a second appeal before the Income-tax Appellate Tribunal (Chandigarh Bench) (hereinafter referred to as " the Tribunal"), which was also dismissed primarily on the ground that the authorities cited on behalf of the assessee did not lend any support to the proposition that the assessee could legally claim the aforementioned amount of depreciation.
4. The board of directors of the assessee h
