ATTOCK OIL CO. LTD., RAWALPINDI Versus COMMISSIONER OF INCOME TAX, RAWALPINDI ZONE, RAWALPINDI
This matter arises from petitions filed by Attock Oil Co. Ltd. concerning the assessment years 1955-56 to 1965-66, where the petitioner sought to set off expenses incurred in running and subsidizing schools for the children of its employees under Section 10(2)(xvi) of the Income Tax Act, 1922. The core legal question is whether the educational expenses incurred by the employer under threat of an industrial dispute fall under Section 10(2)(xvi) or are barred by Section 10(2)(xvi)(a) of the Income Tax Act, 1922. The Income Tax Officer rejected the claim, but the Income Tax Appellate Tribunal accepted it. Subsequently, the Lahore High Court held that the petitioner was not entitled to the benefit. The Supreme Court granted leave to appeal to examine the validity of the High Court's view and whether the expenses fall within the claimed statutory provision. The key principle laid down is that expenses incurred by an employer to meet employee demands to avert industrial disputes warrant a detailed examination regarding their deductibility as business expenditures under the Income Tax Act.
- Whether expenses incurred by a company in running and subsidizing schools for the children of its employees fall under Section 10(2)(xvi) of the Income Tax Act, 1922?
- Are educational expenses incurred to meet employee demands and avert an industrial dispute hit by the provisions of Section 10(2)(xvi)(a) of the Income Tax Act, 1922?
- Section 10(2)(xvi), Income Tax Act 1922
- Section 10(2)(xvi)(a), Income Tax Act 1922
ORDER
1. [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 assessment 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..