Monday, April 7, 2014

Exp. on installation of traffic signals to ensure timely presence of employees in office was allowable u/s 37(1)

Where assessee incurred expenditure on installation of traffic signals at various parts of city in order to secure free movement of its employees so that they reached office in time, amount so spent being a part of its corporate responsibility, was to be allowed as business expenditure under section 37(1)
·         The assessee paid certain amount for installation of traffic signals in a particular part of the city.
·         The assessee claimed that the traffic signals had been installed to ensure that employees would reach office in time without facing any traffic problems and, hence, it should be allowed as revenue expenditure.
·         The Assessing Officer held that benefit from installation of traffic signals derived by assessee being very remote, the expenditure could not be allowed under section 37(1).
·         The Tribunal, however, allowed the assessee's claim.
·         On revenue's appeal:
Expenditure incurred by the assessee was allowed by the High Court in the light of the following grounds:-
1)    Payment made by aseessee couldn’t be considered as illegal as it wasn’t paid to the police or rowdies to keep them away from the business premises.
2)    Payment made by assessee couldn’t be disallowed on the ground that expenditure was incurred voluntary and without any necessity and pubic was also benefited from such expense.
3)    To allow an expense the term ‘for the purpose of business’ shouldn’t be limited to meaning of earning the profits only.
4)    Expense incurred by assessee had to be allowed because late coming of employee due to severe traffic congestion was seriously affecting the business of the assessee.

5)    Expense couldn’t be disallowed on the ground that it was the responsibility of the State and in particular, the police department either to install the traffic signal or control the traffic because it was also the corporate Social responsibility of the assessee.