COMMISSIONER OF INCOMETAX vs CHERAN TRANSPORT CORPORATION LTD.

N. V. Balasubramanian J.

The Revenue being aggrieved by the order of the Income lax Appellate Tribunal, sought for a reference and the Appel late 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 tor

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 ?

In so far as (lie first question of law that has been referred to us is concerned, the assessee claimed a deduction for a sum of Rs. 1,49,579 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 unconstitutional. 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 31-10-1982, 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 entilled 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 24-2-

1998 (Cheran Engineering Corporation Ltd. v. CIT (1999) 258 ITR 892). 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 Commissioner of Income Tax Vs. T.V. Sundaram Iyengar and Sons P. Ltd., , 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 Housing Building Society is allowable as revenue expenditure.

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