Commissioner of Income Tax vs Bimetal Bearings Ltd.

Thanikkachalam J.

At the instance of the Revenue, the Tribunal referred the following question u/s 256(1) of the Income Tax Act, 1961, for our opinion :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the settling allowance of Rs. 16,000 paid to the employees in connection with the shifting of the factory from Madras to Coimbatore is an admissible deduction ?"

The assessee is a company. The assessment for the assessment year 1977-78 was completed on April 16, 1979, determining the total income at Rs. 1,37,62,220. While completing the assessment, the Income Tax Officer disallowed a sum of Rs. 16,000 being the settling allowance paid to the employees in connection with the shifting of the factory building. On appeal, the Commissioner of Income Tax (Appeals), following an earlier order of the Tribunal in the case of the same assessee for the assessment year 1974-75 held that the shifting allowance paid to the employees should be allowed as a deduction. On further appeal, the Tribunal confirmed the order passed by the Commissioner of Income Tax (Appeals).

Learned standing counsel appearing for the Department contended that the expenditure of Rs. 16,000 incurred by way of settling allowance paid to the employees in connection with the shifting of the factory would amount to capital expenditure. Therefore, the Tribunal was not correct in directing the Assessing Officer to allow this as deduction treating the same as revenue expenditure. In support of this contention, learned standing counsel relied upon a decision of the Supreme Court in Sitalpur Sugar Works Ltd. Vs. Commissioner of Income Tax, Bihar and Orissa, . According to the facts arising in that case, the assessee claimed expenditure incurred in dismantling and reshifting the existing plant at a better site as revenue expenditure. But this was not accepted by the Supreme Court. The Supreme Court held that the expenditure incurred in dismantling and shifting the existing plant would amount to capital expenditure. But, in the present case, the amount was paid to the employees by way of settling allowance. We were told that this would be in the nature of settling the allowance due to the employees since the factory is going to be shifted to a new place. Hence, it would not be considered as giving any benefit of enduring nature to the assessee. Hence, the decision of the Supreme Court in Sitalpur Sugar Works Ltd. Vs. Commissioner of Income Tax, Bihar and Orissa, , stated supra, would not be applicable to the facts of this case. Inasmuch as this expenditure was incurred towards payment of allowance due to the employees, before shifting the factory, we consider that it is revenue in nature and, therefore, allowable as a deduction. In that view of the matter, we consider that there is no infirmity in the order passed by the Tribunal on this aspect.

Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.