JUDGMENT
J.S. Verma, Actg. C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee to decide the following questions of law :
“(1) Whether, on the facts and in the circumstances of the case, the amounts of Rs. 16,905 and Rs. 518 spent on repairs of machinery and bhatta and chimneys, respectively, were allowable as business expenditure ?
(2) Whether the amount of Rs. 10,444 for which a provision was made for overtime wages could be allowed as a deduction in computing the total income ?”
2. The material facts are these: The assessee is a limited company deriving income from manufacture and sale of sanitary pipes, fire bricks, etc., at Jabalpur. The relevant assessment year is 1971-72 for which the corresponding previous year ended on December 31, 1970. The assessee claimed a deduction of Rs. 16,905 on account of repairs to the machinery during the relevant period and also a deduction for provision made for overtime wages to its workmen amounting to Rs. 10,444.
3. The Income-tax Officer rejected these claims for deduction and so also the Commissioner (Appeals) as well as the Tribunal in appeals filed by the assessee. Aggrieved by the view taken against the assessee on both these
points, the assessee sought a reference which has been made to answer the
aforesaid two questions.
4. The facts found proved by the Tribunal and stated in the statement of the case for the purpose of deduction of Rs. 16,905 on account of expenditure incurred on repairs of the machinery are that the assessee had admittedly closed the manufacturing business at its Jabalpur branch in the year 1967 and no manufacturing business was carried on by it even during the entire relevant previous year. The only business carried on by the assessee during the relevant previous year was the sale of manufactured goods which had been manufactured prior to the closure of the manufacing business in 1967. It has accordingly been held by the Tribunal that no deduction of the expenditure could be granted under Section 31 of the Act on these facts. Learned counsel for the assessee did not dispute that the deduction claimed by the assessee under this head could not be allowed under Section 31 of the Act, particularly in view of the Supreme Court decision in Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. He, however, contended that such a deduction could be allowed under Section 37(1) of the Act. It was argued that the scope of Section 37(1) is much wider and it permits the allowing of “any expenditure laid out or expended wholly and exclusively for the purpose of business or profession” which means that any expenditure for the purpose of any business or profession can be allowed as an expenditure under Section 37(1) of the Act. There can be no dispute with this argument, but the same is of no assistance to the assessee in the present case. Obviously, any expenditure covered as an allowable deduction under Section 37(1) of the Act can only be an expenditure having some nexus with the business or profession carried on during the relevant previous years. Unless there is any such nexus, Section 37(1) can have no applicability. This conclusion is supported by the Supreme Court decision in CIT v. National Syndicate [1961] 41 ITR 225.
5. In the present case, the only business carried on by the assessee was the sale of goods manufactured by it prior to the closure of its manufacturing business in 1967. Obviously, for the purpose of the business of selling the manufactured goods, the repairs to machinery much after the closure of the manufacturing business could have no relevance or nexus. Accordingly, on the facts found proved by the Tribunal, no case for applying Section 37(1) of the Act is made out. The decisions cited by learned counsel for the assessee are distinguishable on facts inasmuch as the business carried on during the relevant previous year in those cases had reasonable nexus with the expenditure incurred which was allowed as a deduction. The aforesaid first question has, therefore, to be answered against the assessee.
6. The second question also must be answered against the assessee in view of the findings of fact arrived at by the Tribunal. The only basis on which deduction of the amount of Rs. 10,444 was claimed as provision for over-time wages was that such a demand had been raised by the workmen. It was not shown that the liability arose during the relevant previous year under any statute, contract or adjudication of any Tribunal. The finding is that the workers’ demand of overtime wages had not been proved. This being the sole basis for claiming the deduction, there is no foundation for the claim and, therefore, the Tribunal’s view, oven on this point, cannot be assailed. Consequently, the reference is answered against the assessee and in favour of the Revenue as under :
1. On the facts and in the circumstances of the case, the amounts of Rs. 16,905 and Rs. 518 spent on repairs of machinery, bhatta and chimneys, respectively, were not allowable as business expenditure.
2. The amount of Rs. 10,444, which was a provision made for overtime wages, could not be allowed as a deduction in computing the total income.
7. The Revenue shall get its costs from the assessee. Counsel’s fee Rs. 200, if certified.