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

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           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.
                                                                                    D
         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.

          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 capital assets to the assessee Company-Held
    conclusion of Tribunal was right.                                               F
          L.H. Sugar Factory and Oil Mills (P) Ltd. v. Commissioner of Income-
    Ta.x, U.P.125 I.T.R. 293 and Commissioner of Income Tax, Madras v. T.V.
    Sundram Iyengar and Sons Private Ltd., 186 I.T.R. 276, relied on.

          Travancore-Chochin Chemicals Ltd. v. Commissioner of Income-Tax,          G
    Kera/a 106, I.T.R. 900, referred to.

          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 593-94
    of 1978.

          From the Judgment and Order dated 12.8.77 of the Bombay High              H
                                   65
    66                   SUPREMECOURTREPORTS                    [1996] 3 S.C.R.

A Court in LT.A. No. 206 of 1977.
          Dr. V. Gaurishankar and S.N. Terdol for the Appellants.

         Gourab Banerjee, Ms. Anjali Verma and Ms. Ruby Ahuja for the
    Respondents.
B
          The following Order of the Court was delivered :

          These appeals are preferred against the judgment of the Bombay
    High Court rejecting an application under Section 256{2) of the Income
    Tax Act. The revenue had applied for referring the following two questions
C   for the opinion of the High Court :

            "(i) Whether on the facts ad in the circumstances of the case, the
            Tribunal was right in law in holding that the professional charges
            paid by the assessee company to its Solicitors for effecting the
            amalgamation of nawrosjee Wadia ginning & pressing company
D           with it, was of revenue nature and should be allowed as a deduction
            in the computation of its total income?

            (ii) Whether, on the facts and in the circumstances of the case, the
            Tribunal was justified in law in holding that the 'assessee-company'
            was entitled to a deduction for a sum of Rs. 2,25,000 in respect of
E
            the contribution made by it to the Maharashtra Housing Board
            towards the construction of tenements for its workers."

         The facts concerning the first question are the following : a company
  named Nawrosjee Wadia Ginning & Pressing Company was amalgamated
F with the assessee-company. In that connection an expenditure of Rs. 10,350
  was incurred by the assessee company towards the professional charges
  paid to the firm of Solicitors. In the assessment proceedings the said
  amount was claimed as a revenue expenditure. The assessee's case was that
  Newrosjee Wadia Ginning & Pressing Company was engaged in the same
  business as the assessee. In other words, the business of both the companies
G were "complimentary". The directors of both the companies thought that it
  would be advantageous if both the companies are amalgamated. Accord-
  ingly, a scheme of amalgamation was evolved. It was submitted that the
  legal expenses incurred in connection with the said amalgamation are in
  the nature of revenue expenditure. The Income Tax Officer did not agree
H nor did the Appellate Assistant Commissioner. On further appeal, the
              C.l.T. v. BOMBAY DYNG. AND MFG. CO.LTD.                    67

 Tribunal upheld the assessee's contention. It disagreed with the Revenue's A
 contention that inasmuch as the said amalgamation resulted in acquisition
 of the other company by the assessee, which acquisition was in the nature
 of acquisition of a capital asset, the legal expenses incurred in that behalf
 partake the nature of capital expenditure. The Tribunal was of the opinion
 that "as both the companies were carrying on complimentary business and B
 their amalgamation was necessary for the smooth and efficient conduct of
 the business", it is an expenditure laid out wholly and exclusively for the
 purpose of the business of the assessee. In view of the said finding and also
 in view of the decision of this Court in Bombay Steam Navigation Company
 Private Limited v. Commissioner of Income-Tax, Bombay, 56 l.T.R. 52, we C
 are of the opinion that the Tribunal was right in its conclusion. The
 decision in Bombay Steam Navigation also pertains to amalgamation of two
 shipping companies. The assessee-company took over the assets of the
 other company and part of the price was treated as a loan secured by a
 promissory note and hypothecation of all movable properties of the asses-
 see company. The loan was to carry simple interest at 6 per cent. The D
 qm,stion that arose in the said case was whether the interest paid upon the
 said loan was deductible as revenue expenditure. It was held by this Court
 that it was an expenditure deductible under Section 10(2)(xv) of the
 Income Tax Act. It was held that transaction of acquisition of the asset
 was closely related to the commencement and carrying on of the assessee's E
 business and, therefore, interest paid on the unpaid balance of the con-
sideration for the assets acquired had, in the normal course, to be regarded
as expenditure for the purpose of the business which was carried on in the
accounting periods. In the course of the judgment this Court referred to
the earlier decision of this Court in State of Madras v. G.J. Coelho, 531.T.R. F
186 wherein it was held that the interest on the amount borrowed for
acquiring a capital asset is deductible as revenue expenditure. It is true,
that in the said decision this Court re-affirmed the well established prin-
ciple that any expenditure laid out for acquiring an asset of a permanent
character would be capital expenditure, held at the same time that inas-
much as the acquisition of the other company was in the course of carrying G
on of the assessee's business, the interest paid thereon was deductible
under Section 10(2)(xv) of the Act. In this case too, the Tribunal has
recorded a finding that the acquisition of Nawrosjee Wadia Ginning &
Pressing Company was necessary for the smooth and efficient conduct of
the assessee's business. Following the ratio of the aforementioned decisions H
     68                   SUPREMECOURTREPORTS                    (1996] 3 S.C.R.

A of the Court, we hold that the expenditure incurred towards professional
     charges of the Solicitors firm for the services rendered in connection with
     the said amalgamation was in the course of carrying on of the assessee's
     business and, therefore, deductible as a revenue expenditure. In this view
     of the matter, it is not necessary for us to deal with the other decisions
     cited before us on this question.
B
         Now coming to the second question, the finding of the Tribunal is
  that the amount of Rs. 2,25,000 was contributed· by the assessee to the
  Maharashtra Housing Board towards construction of tenements for the
  company's workers. It was contended by the assessee that the said expen-
C diture was incurred only and exclusively on the welfare of the employees
  and, therefore, constitutes legitimate business expenditure. The Income
  Tax Officer and the Appellate Assistant Commissioner rejected the plea.
  The Tribunal, however, upheld the assessee's contention holding that the
  expenditure in question brought into existence no capital asset to the
D assessee-company as the tenements remained the property and the assets
  of the Housing Board. The assessee-company acquired no ownership rights
  in the said tenements, it held. The Tribunal found further that there was
  no obligation on the assessee-company to provide its workers tenements
  constructed by the Housing ·Board and that the benefit of better and
  cheaper housing in this case obtained by the industrial workers of the
E assessee-company did not constitute a direct benefit of an enduring nature
  to the assessee. T.he expenditure, it observed, was incurred merely with a
  view to carry on the business of the assessee-company more efficiently by
  having a contented labour force .

.F       Dr. V.Gaurishankar, learned counsel for the Revenue, places strong
   reliance upon the decision of this Court in Tranvancore-Cochin Chemicals
 - Limited v. Commissioner of Income Tax, Kera/a, 106 I.T.R. 900. The facts
   of the case are the following : The assessee-company was receiving and
   despatching material required for its purposes through trucks. The ap-
   proach road to its premises was not a pucca road and was causing difficul-
G ties and inconvenience on several occasions. Along with three other public
   undertakings, the assessee approached the Kerala Government for laying
   a new road to that area. While the Government bore the cost of acquisition
   of land and part of the cost of construction of the road, the remaining cost
   was met by the four companies including the assessee. The question was
H whether the said expenditure is allowable as a revenue expenditure. This
              C.l.T. v. BOMBAY DYNG. AND MFG. CO.LTD.                     69

 Court held that by having the new road constructed for the improvement         A
of transport facilities, the appellant had acquired an enduring advantage
 for its business and, therefore, the expenditure incurred by the assessee
was of a capital nature. Dr. Gauri Shankar says the principle of the said
decision is equally applicable herein inasmuch as provision for better
housing to the assessee's workers was ultimately a benefit - and an enduring    B
benefit - to the assessee. On the other hand, the learned counsel for the
assessee brought to our notice a later decision of this Court in L.H. Sugar
Factory and Oil Mills (P) Ltd. v. Commissioner of Income-Tax, U.P., 125
I.T.R. 293 where after discussing the facts and the principle of the decision
in Tranvacore Cochin Chemicals case it has been held that the ratio of the
said decision must be confined to the peculiar facts of that case alone for     C
reasons assigned in that behalf. The decision in L.H. Sugar Factory and Oil
Mills case was also a case where certain expenditure was incurred towards
part of the cost of construction of the roads in the area around the factory
and it was held that it was a business expenditure. Our attention is also
invited to an order of this Court in the Commissioner of Income Tax,            D
Madras v. T. V. Sundaram Iyengar and Son Private Limited, 186 I.T .R. 276
wherein it has been held that the amout advanced by the assessee for
construction of houses under a subsidised industrial scheme for its
employees is in the nature of a revenue expenditure. In this case too, the
amount was advanced to the. Government which purchased the land in its
own name and the buildings constructed thereon became properly of the           E
Government - and not of the assessee. Having regard to the facts of the
appeals before us and in the light of the findings recorded by the Tribunal
we think that the principle of L.H Sugar Factory and Oil Mills (Supra) and
Commissioner of Income-Tax, Madras (Supra) is more appropriate than the
principle in Travancore-Cochin Chemicals (Supra).                               F

       We are, therefore, of the opinion that the High Court was justified
in rejecting the application under Section 256(2) of the Income Tax Act.
The appeals are dismissed. No. costs.

T.N.A.                                                   Appeals dismissed.