ATTOCK OIL CO. LT., RAWALPINDI Versus COMMISSIONER OF INCOME TAX, RAWALPINDI ZONE, RAWALPINDI
This matter concerns a petition for leave to appeal against a judgment of the Lahore High Court regarding the tax deductibility of expenses incurred by the petitioner, Attock Oil Co. Ltd., for maintaining and subsidizing schools for its employees' children. The petitioner sought to set off these expenses against its income for the assessment years 1955-56 to 1965-66, invoking Section 10(2)(xvi) of the Income Tax Act, 1922. The Income Tax Officer had rejected the claim, citing Section 10(2)(xvi)(a), a decision initially overturned by the Income Tax Appellate Tribunal but subsequently upheld by the High Court. The core legal question before the Supreme Court is whether the expenses incurred by the company to meet employee demands and prevent industrial disputes qualify as deductible business expenses under Section 10(2)(xvi) or are excluded by the provisions of Section 10(2)(xvi)(a) of the Income Tax Act, 1922. Finding that the High Court's interpretation requires further examination, the Supreme Court granted leave to appeal to resolve the applicability of the statutory provisions to the petitioner's claim.
- Whether expenses incurred by an employer for subsidizing schools for employees' children to avert an industrial dispute qualify as deductible business expenses under Section 10(2)(xvi) of the Income Tax Act 1922?
- Does the exclusion under Section 10(2)(xvi)(a) of the Income Tax Act 1922 apply to expenditures incurred by a company for the education of its employees' children?
- Section 10(2)(xvi), Income Tax Act 1922
- Section 10(2)(xvi)(a), Income Tax Act 1922
1. ORDER [The Order of the Court was passed by Dorab Patel J.].-Heard learned counsel. The restoration applications are allowed.
2. The common question in these petitions is whether the petitioner's case falls under Section 10(2)
(xvi) of the Income Tax Act, 1922. And, for the purpose of these petitions it is sufficient to state that the petitioner, has been running a school ~and subsidizing two Other schools for the benefit Of the children of its employees. We were also informed that this was in order to meet a demand of the employees, who had threatened to raise an industrial dispute. In this background, the petitioner claimed the right for the assessm ent years 1955-56 to 1965-66 to set off the expenses thus incurred on its three schools against the income for the aforesaid years under section 10(2)(xvi) of the Income Tax Act. The Income Tax Officer rejected this claim on the ground that the expenses could not be allowed, because they fell under Section 10(2)(xvi)(a). The petitioner challenged these orders before the Income Tax Appellate Tribunal, which accepted its contention. Therefore, the department referred the question to the Lahore High Court and a Division Bench of the Lahore High Court after examining the case law carefully (we say so with respect) held that the petitioner was not entitled to the benefit of section 10(2)(xvi) of the Income Tax Act.
3. Mr. Zafar challenged the validity of this view and the question whether the petitioner's claim fells under Section 10(2)(xvi), as claimed by it, or is hit by the provisions of Section 10(2)(xvi) (a), as held by the learned Judges, requires further examination. Accordingly, we grant leave.
4. The appeals arising out of these petitions will be heard together and will be made ready on the present record with liberty to the parties to file additional documents, if any. A sum of Rs. 5,000/- should be deposited as security for all the petitions..